DRC Growth Diagnostic

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U l l o a , K a s t & K e k e h

Democratic Republic
of the Congo
A study of binding constraints

2009
Alfie Ulloa, Felipe Katz, Nicole Kekeh
12/28/09

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Table of Contents
1. Introduction ................................................................................................................. 9
1.1 1960s: The early Mobutus years ............................................................................... 9
1.2 The early 1970s: Zarinization and radicalization ..................................................... 10
1.3 The late 1970s and 1980s: The collapse of Gcamines ............................................. 11
1.4 The 1990s and early 2000s: the conflict years .......................................................... 16
1.5 Explaining a six-year growth acceleration ................................................................ 17
1.6 Looking at the reconstruction challenge ................................................................... 20
2. The Hausmann, Rodrik and Velasco Diagnostics Framework ................................ 21
2.1 Understanding the Hausmann, Rodrik and Velasco Diagnostics Framework ............ 21
3. Poverty Diagnostics ................................................................................................... 23
3.1 Measuring Poverty................................................................................................... 23
3.2 Poverty and Education ............................................................................................. 25
3.3 Poverty and Health .................................................................................................. 27
4. Applying the Growth Diagnostics Framework......................................................... 28
4.1 Is lack of access to finance the constraint? ............................................................... 28
4.1.1 Is it lack of access to international finance? ......................................................... 28
4.1.2 Is it lack of access to domestic finance? ............................................................... 32
4.2 Is it low social returns on economic activity? ........................................................... 37
4.2.1 Is Infrastructure the binding constraint? .............................................................. 37
4.2.2 Is human capital a binding constraint? ................................................................ 43
4.3 Is it low appropriability? .......................................................................................... 46
4.3.1 Is it Government failures? .................................................................................... 46
4.3.2 Market Failures ................................................................................................... 50
5. Conclusion ................................................................................................................. 53
Policy Issues ....................................................................................................................... 55
References.......................................................................................................................... 56

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Figure 1. Trends in per capita GDP ........................................................................... 9
Figure 2 DRC: Evolution of GDP and per capita GDP ............................................. 12
Figure 3 Gcamines production, copper, cobalt and zinc .......................................... 13
Figure 4 DRC: Sector evolution in % of GDP .......................................................... 16
Figure 5 DRC: Recent evolution compared to SSA ................................................. 17
Figure 6 DRC and other post-conflict countries*, ..................................................... 18
Figure 7 Copper, cobalt and zinc production ............................................................ 19
Figure 8 The HRV (2005) Growth Diagnostics Decision Tree .................................. 22
Figure 9 DRC: average poverty by province ............................................................. 24
Figure 10 DRC: Average enrollment rate ................................................................ 26
Figure 11 DRC: Average poverty by gender ............................................................. 26
Figure 12 DRC: Children vaccination....................................................................... 27
Figure 13 The HRV decision tree ............................................................................. 28
Figure 14 DRC: Foreign direct investment and GDP growth, 1996-2006.................. 29
Figure 15 DRC: Gross Domestic Investment, Savings and the Current Account ....... 30
Figure 17 DRC: Interest rate and credit to the private sector ..................................... 35
Figure 18 HRV Decision Tree .................................................................................. 37
Figure 19 Diagrammatic Map of Transport in the DRC ............................................ 39
Figure 20 DRC: IElectric Generation and GDP, 1996 - 2006 .................................... 42
Figure 21 Average years of education ...................................................................... 43
Figure 22 Returns to education (Mincer) by Province ............................................... 44
Figure 23 Skilled premium between skilled and non-skilled workers ........................ 45

Table 1 DRC: The collapse in mining and its impact ............................................... 14
Table 2 Congo DRC: Evolution of GDP by Sector, 2000 2008* (annual change) .. 18
Table 3 The DRC: Private investment by Province, 2003-2008 ................................ 20
Table 4 Poverty measures by province and area ....................................................... 24
Table 5 DRC and Kinshasa: Health indicators .......................................................... 27
Table 6 DRC: Most severe constraint (2006) ............................................................ 33
Table 7 Credit to the Private Sector by Activity (share over total) ............................ 34
Table 8 DRC: Access to Credit for Production and Investment ................................. 36
Table 9 DRC mining and transport sector, key statistics (1988-1994) ....................... 38
Table 10 Percent of firms owing a generator, DRC and comparator countries........... 41
Table 11 Education levels (% by attainment, population 15 years and more) ............ 43
Table 12 DRC: Educational Level of Managers by province .................................... 45
Table 13 DRC and comparator countries: Paying Taxes ........................................ 48
Table 14 DRC: Main exports and participation in total exports ................................. 52
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Abbreviations and Acronyms
ACF Action Contre la Faim
ACOGENOKI Association of cattle farmers
ANAPI Agence pour la Promotion de lInvestissement
BCC Banque Centrale du Congo
CDF Congolese Franc
CNDP Congrs national pour la dfense du Peuple
COMTRADE United Nations Commodity Trade Statistics Database
DRC Democratic Republic of the Congo
DSCRP Document de Stratgie de la Croissance et de rduction de la pauvret
EDS Enquete Dmographique et de Sant
FAO Food and Agriculture Organization
FAPC Forces armes du peuple congolais
FARDC Forces Armes de la RDC
FDI Foreign Direct Investment
FDLR Forces dmocratiques de libration du Rwanda
FNI Front nationaliste et intgrationaliste
GDP Gross Domestic Product
GCAMINES Gnrale des Carrires et des Mines
GoDRC Poverty Reduction and Growth Strategy Paper
HIPC High Indebted Poor Countries Initiative
HRV Hausmann, Rodrik & Velasco Growth Diagnostics Framework
ICA Investment Climate Assessment
IDPs Internally Displaced Persons
IMF International Monetary Fund
IPIS International Peace Information Services
MIBA Socit Minire de Bakwanga
MICS2 Multiple Indicators Cluster Survey
MONUC Mission des Nations Unies au Congo
NGOs Non-Governmental Organizations
OCC Office Congolais de Contrle
OKIMO Office des Mines d'Or de Kilo-Moto
ONATRA Office National des Transports
PMURR Programme Multisectoriel d'Urgence pour la Relance et la
Reconstruction
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REGIDESO Rgie de Production et de Distribution d'Eau et d'Electricit
SSA Sub-Saharan Africa
SDR Special Drawing Rights
SENASEM Service National des Semences
SNCC Congo National Railway Company
SNEL Socit National d'Electricit
SNSA Service National des Statistiques Agricoles
SOMINKI Socit Minire et Industrielle du Kivu
SOTEXTI Socit de Textiles de Kisangani
UN United Nations
UNDP United Nations Development Program
USAID United States Agency for International Development
US$ United States Dollars
WB World Bank
WDI World Development Indicators
ZAIRETAIN Zare Tin Company
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Executive Summary
In 2008, the DRC was ranked as the poorest country in the world with a GDP per capita
of US$94 (real US$ 2000), or per capita of US$ 25 cents a day. This resulted after the
largest drop in per capita income of all the countries for which data is available from 1960 to
2008. Per capita income in real dollars in the year 2008 is about one-third of its value in
1960.
Historically weak competitively, the exports sector has been susceptible to external
shocks that were exacerbated by high dependency upon two minerals (copper and
cobalt) and two agriculture products (palm oil and coffee). Over the years, these shocks
have generated a series of external crises amplified by poor policy-making and
mismanagement. From the mid 1970s to the mid-1980s, a turbulent chapter of
nationalizations and expropriations led to a collapse in growth and private investment that
was compounded by fiscal and monetary chaos, corruption and erratic State interventionism.
In 1991 to 1993, mass lootings by the military and unruly mobs targeted industries and assets,
destroyed plantations and infrastructure. In the mid-1990s, the already bankrupt economy
was pushed to the brink by the outbreak of armed conflict and violence.
Investment and growth resumed in 2003 after a power-sharing agreement that ended
the open military conflict. A fragile peace has prevailed with localized military conflict
between different armies, armed militias and rebel groups in the eastern provinces of the
Congo. Since 2003, the countrys positive growth has kept pace with the Sub-Saharan Africa
average.
The poverty diagnostic confirms that any attempt to reduce high poverty rates must
focus its attention on agriculture. About 40 percent of the labor force in the country is
occupied in agriculture, and urban centers, which are plagued by high rates of unemployment,
are not currently able to absorb additional migration from the country side. Therefore,
improving the agriculture sector will have an important positive impact on poverty. Other
interventions to respond to poverty will need to be well targeted to the particular needs of
each province (see provincial reports).
The growth diagnostic, based on the framework developed by Hausmann, Rodrik and
Velasco (HRV)
1
, finds that the agricultural and non-agricultural sectors face a very
different set of constraints to growth.
Based on their growth diagnostics analysis, the authors conclude that: i) security; ii)
infrastructure; and iii) access to finance pose the most severe constraint to agriculture.
The agricultural sector has become less competitive in a country where it still provides jobs
for nearly 70 percent of the work force and contributes the largest share of the GDP. And
yet, the present recovery of growth has left out the agriculture and agro-industry sectors,
which were the backbone of the domestic economy and the engine of exports. A poor
security situation has led to the abandonment of large organized industrial agriculture, and
frequent looting and scorched earth tactics have discouraged small landholders in war
affected areas. Transport is reducing competitiveness and constraining agriculture and agro-
industry, in particular for regions dependent in land transportation. Access to finance is a

1 Hausmann, R., Rodrik, D., & Velasco, A., 2004, Growth Diagnostic. John F. Kennedy School of
Goverment, Harvard University.
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constraint to rural development as most commercial banks do have coverage outside of the
large cities, and collateral requirements are not well suited for rural clients.
Diversification away from the primary sector (agriculture, mining and timber) has not
happened in the local economy and the exports basket. Even if the secondary sector
contributed little to exports in the past, it represented an important share of the local economy
now extinct.
Industry and manufacture are most constrained today by the following bottlenecks: i)
poor finance; ii) electricity; and iii) government failures. Access to finance is a binding
constraint to private investment in the DRC. Only large foreign firms that can self-finance
are not suffering this constraint. Alternative sources of finance for domestic entrepreneurs
are scarce and limited in size and in terms. Energy appears to pose an active constraint at the
national level, and for manufacturing sector.
Government failures are the over-arching binding constraint to a functioning legal and
regulatory framework, which in turn limits availability of credit finance in spite of a
dynamic albeit concentrated banking sector; and limits electricity availability in spite of
colossal endowments of hydropower capacity. Policy interventions could serve to catalyze
systemic change, if they succeeded in creating an institutional bubble around a few key
lever agencies, in the realms of the economic sectors determined to be most constrained,
and bet that this institutional transformation could serve to establish a new institutional model
that would increase the cost of corruption, on the one hand, and exemplify doing business
differently.

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Acknowledgements
This paper is part of an ambitious project to carry out a Growth Diagnostics Analysis in the
Democratic Republic of the Congo and five of its provinces: Bandundu, Katanga, Kinshasa,
Orientale and Sud Kivu, applying the framework developed by Hausmann, Rodrik and
Velasco
2
.
The growth analytics exercise included desk-based reviews of primary data from various
sources
3
. The study was enormously enriched with two field study trips consisting of visits to
seven provinces between July and November 2009
4
.
During their field visit, the authors
5
conducted over a hundred interviews with key actors
representing a wide cross-section of sectors, including private and public sector
representatives, civil society, bilateral and multilateral donors and members of the diplomatic
community. The team interviewed and engaged in illuminating discussions with
representatives from the main government agencies, including the Central Bank, the Prime
Ministers Office and several sector Ministries. At the provincial level, the team met with the
Governors of the Provinces of Katanga, Kinshasa and North Kivu, several Ministers and their
top aides. On the private sector side, the authors met with Congolese entrepreneurs and
businessmen. They spoke with as many Congolese actors as they could meet in the formal
and informal sectors. They interviewed executives of the largest industrial groups and private
firms in sectors ranging from finance, mining, agriculture, services, timber, cattle raising,
construction infrastructure, transport (air, road and rail), and shipbuilding yards. The authors
would like to express a deep debt of gratitude for the time, the energy and the passion that all
their interlocutors invested in their research.
The authors would like to express their deepest thanks and gratitude to the Swedish
International Development Cooperation Agency (SIDA) and to the World Bank Group for
their financial, technical and logistical support that made it possible to undertake this
challenging study. Johannes Herderschee and Markus Scheuermaier shared their expertise
and provided assistance and guidance to the team before, during and following their field
visits to the DRC. Janine Mans and Erinn Wattie provided valuable editorial support. The
authors wish to thank the reviewers. The staff and management of the World Bank Group
representation in Kinshasa deserve the teams sincere thanks for their invaluable assistance at
any hour of the day when the team was traveling across the country, and for generously
sharing their knowledge of the history and economy of the Congo. Francisca de Iruarrizaga,
Hayoung Kim and Rodrigo Salvado offered superb research assistance. The views contained
in this report are those of the authors. The authors would like to note that any errors,
omissions, views and opinions contained herein are solely those of the authors.

2
HRV. 2006.
3 Sources included: World Bank Investment Climate Survey, DRCs Households surveys: the 1-2-3 Survey
(2004-2005) and the Multi-Cluster Survey (MICS-2) (2001), as well as aggregate data available from the central
authorities in the DRC.
4
In addition to the five provinces officially selected for the study: Bandundu, Katanga, Kinshasa, Orientale and
South Kivu, the authors also traveled to the provinces of Bas-Congo and North Kivu.
5
Alfie Ulloa is a Doctoral Fellow at the Center for International Development, Harvard University. Felipe Kast
is a researcher at the MIT Poverty Action Lab and a Professor at the Economics Department of the Catholic
University of Chile. Nicole Kekeh, on leave from the World Bank, is an expert on fragility and post-conflict
environments.
8
1. Introduction
In 2008, the DRC was ranke
poorest country in the world w
GDP per capita of US$95 (in r
terms), or per capita of US$ 25
day (Figure 1).
6
Since the
independence in 1960, per capit
in real dollars has plummeted; in
2008 per capita income was l
one-third of its value in 1960, in
terms.
7
In fact, the DRC regis
largest drop in per capita incom
the countries for which data is
in the World Banks World Dev
Indicators from 1960 to 2008.
Intermittent civil war and in
are an import factor in this spe
growth collapse. The country w
mid-1998 to mid-2003, and cont
two Kivus and Orientale. As dev
part of the narrative, however, w
Indeed, per capita income in DR
been declining since the mid-198
Even prior to recent conflicts,
mismanagement contributed to
exacerbated by a high dependenc
products (palm oil and coffee)
policies, loss of hard currency, fi
to a virtual halt in private and pu
time by economic mis-managem
1994, the already bankrupt econ
violence.
1.1 1960s: The early Mobut
The late President Mobutu Sese
period of uncertainty and instab
Mobutu ushered in a new era of p
Mobutus regime was marke
nationalized all the countrys m
monopoly control over all minin
Gnrale des Carrires et des M
mining companies. It was grante

6
World Bank. 2009. World Developme
7
World Bank. 2009. World Developme
ed as the
with real
real 2000
5 cents a
time of
ta income
n the year
less than
n constant
tered the
me of all
available
elopment
nstability
ectacular
was devastated by civil wars mid-1996 to end-1
tinues to struggle with instability in the eastern
vastating and tragic as they are, war and instab
worsening the situation in an already impoveri
RC has being falling since the mid-1970ss and to
80s.
a combination of adverse economic shocks a
o poor economic growth performance. An ex
cy upon two minerals (copper and cobalt) and tw
, triggered a vicious cycle of erratic fiscal a
inancial meltdown, and hyperinflation. This cyc
ublic investment. The external shocks were exa
ment and a State that was both paternalistic and
nomy was wiped-out by the outbreak of armed
tus years
e Seko seized power in a coup in 1965, endin
bility that began with the countrys independe
politics that only ended with his exile and demis
ed by major economic upheaval. In 1967
mineral resources and created new State com
ng concessions across all the provinces of the
Mines (Gcamines) is probably the best known
ed the monopoly over all mining concessions i
ent Indicators.
ent Indicators.
Figure 1. Trends in per capi
Source: WDI (2009)
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997 and from
Congo in the
bility are only
shed country.
otal output has
and economic
xport collapse,
wo agriculture
and monetary
cle, in turn led
acerbated over
d corrupt. By
d conflict and
ng a five-year
ence in 1960.
se in 1996.
7, the regime
mpanies with
country. The
n of the State
in the copper-
ita GDP

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and cobalt-rich province of Katanga
8
. In Katanga, two other monopoly companies operated:
the Kisenge Mining Company exploited manganese and the Zare Tin Company (Zaretain)
mined tin. In the Kivus, the Socit Minire et Industrielle du Kivu (Sominki) owned and
exploited the deposits in tin and gold (in South Kivu.) In Orientale, the Office des Mines
d'Or de Kilo-Moto (Okimo) was the monopoly para-statal granted rights for gold
exploitation. In the Kasa Oriental, the monopoly over diamonds exploitation was awarded to
the Socit Minire de Bakwanga (Miba.) For many years, the Congo was the top producer
of cobalt, the third producer of diamonds and the fifth producer of copper in the world.
As part of a political strategy aimed at consolidating his power but also at diversifying the
economy away from mining, Mobutu launched a 10-year plan (the Goal 80), designed to
transform the Congo into an industrialized country by 1980. The project, a grandiose strategy
to be financed in the long-term with income from the mining industry, demanded huge front-
loaded investments financed by internal and external debt borrowing. With a pro-urban bias
(energy and other urban infrastructure, industry and manufacturing), the strategy neglected
agriculture and many of its complementary factors (e.g. transport network.) One flagship
project was the Inga dam (located in the province of Bas-Congo). At the time Inga was one of
the world's largest dams for electricity generation, followed by a 1,110 mile power grid to
bring electricity to the copper-producing Shaba province (current day Katanga.) The U.S.
Export-Import Bank stepped in and funded the dam project, for political considerations. On
the basis of this project alone, the country accumulated US$1 billion in external debts
9
.
1.2 The early 1970s: Zarinization and radicalization
A period of change began in 1971, when Mobutu renamed the country Zare, along with a
number of the provinces and government agencies. These changes proved to be the first in a
series of initiatives launched by Mobutu.
In November 1973, Mobutu launched a nationalization campaign: the Zarinization. In
Mobutus own words Zare is the country that has been the most heavily exploited in the
world. That is why, farms, ranches, plantations, concessions, commerce, and real estate
agencies will be turned over to the sons of the country
10
. As it turned out, the sons of the
country were a select group of politicians, notables and cronies of Mobutus clan who
largely benefited from the process and did little to keep the wheels of the economy turning.
Initially, the campaign expropriated buildings, light industry, and agricultural holdings,
including large plantations. Most of the recipients had neither the experience, nor the capital,
to operate the companies.
In less than a year, the campaign was an evident a disaster.
11
The economy was badly hit by
capital flight, shortages and unemployment. The concentration of land and industrial assets
in Mobutus family, friends and associates created internal political problems for Mobutu,
forcing him to nationalize anew some of the companies held by the initial takers.
Thirteen months after the launch of Zarinization, a radicalization program was
launched to correct the outcomes of the Zarinization outcomes. In certain cases, the
radicalization program allowed yet greater concentration of companies and politically-driven
allocation of ownership. In other instances, the radicalization widened the expropriation

8
The province is rich in many other minerals, including copper, cobalt, zinc and uranium.
9
Zare: A Country study, Handbook. Library of Congress (1994).
10
Quoted by Zare: A Country study, Handbook. Library of Congress (1994).
11
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process, now targeting the large industrial companies (mostly Belgian-owned) that had been
spared by the initial round of nationalizations. Over this troubled time for the economy of the
Congo, private companies were nationalized and consolidated into powerful para-statals. In
1974, five railway companies where nationalized and merged into the Socit Nationale des
Chemins de Fer Zarois, todays Socit Nationale des Chemins de Fer Congo (SNCC.)
SNCC today controls some 4,600 km of rail lines across the country, including the rail lines,
with the exception of a short rail link connecting Matadi to Kinshasa that is under
ONATRAs legal jurisdiction.
Two years after the Zarinization started, and one year after the radicalization campaign,
Mobutu conceded the failure of the program. He then announced another wave of reforms
called retrocession that restituted nationalized assets to their foreign owners and/or
mandatory imposed local partners to those foreign investors. Such was the case for a few
Belgian and other interests invested in timber, land farming and cattle raising
12
. Between 40
and 60 percent of foreign assets were returned, although the State remained as partner in most
companies.
The Zarinization and the radicalization campaigns severely weakened the economy.
They caused inflation and unemployment, inventory and asset liquidation, shortages of basic
commodities and inflation. On a larger scale they scared domestic and foreign investors. The
plantation economy virtually disappeared. At the same time, the State accumulated huge debt
arrears. The destructive impact of the program is still felt today.
1.3 The late 1970s and 1980s: The collapse of Gcamines
During the Zarinization and radicalization periods, the country also suffered a number of
external economic shocks, further destabilizing the already weak economy. In 1975, several
years of boom in copper prices (copper was one-half of DRCs exports at the time) came to
an abrupt halt, with a 40 percent drop in prices in one year (see Figure 2.) During the same
period, oil prices rose dramatically. Also in 1975, the Benguela Railway connecting the
mining areas in Katanga (then Shaba) and the Angolan port of Lobito closed
13
. Crippled by
the nationalization programs and the external shocks, the economy could not recover; and
total output in the country shrunk. The freefall in per capita income from 1975 to 1981
reduced real per capita incomes in Congo by almost one third (see Figure 2.)The successive
shocks to the countrys mining sector had a particularly dramatic effect on the countrys
output because of the reliance of the country on mineral exports, in particular Gcamines
copper exports. In the early 1970s, high copper prices led to strong growth, though this
growth did not lead to appreciable increases in GDP per capita due to high population
growth. During the 1970s and early-1980s, 60 percent of DRCs exports were made up of
Gcamines copper. The other mining companies accounted for another 20 percent. During
the early 1980s, even after the collapse in mineral prices, mining continued to account for 80
percent of all exports value, around 50 percent of government revenues and 13-23 percent of
GDP
14
.

12
Interviews by the authors. DRC. July-October 2009.
13
Shortly thereafter, the Kisenge Mining Company exploiting manganese near Dilolo at the border with Angola
ceased production.
14
Zare: A Country Profile, USAID (1986).
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The series of shocks
15
triggered social unrest and a series of domestic crises, the most serious
being the attempted secession of the copper provinceKatanga (then Shaba)in 1977 and
1978. The secessionist revolt in Katanga raised concerns in the world market that mineral
production might stop, triggering a rush to buy up supplies of cobalt and copper. This
speculative burst caused copper and cobalt prices to soar, giving the copper sector a short
relief. In 1981, copper prices started another dive, this time with a 45% reduction.
Figure 2 DRC: Evolution of GDP and per capita GDP

Source: WDI (2009)
In 1986, the price of cobalt, the countrys second most important export commodity plunged
by 58%. This crisis set in motion a new dive in countrys income (see Figure 2.) Despite the
richness of mining resources in Katanga, remoteness, mismanagement and obsolescence of
its capacity made Gcamines uncompetitive and very sensitive to price shocks. In 1990, after
cobalt prices had recovered and were high compared to prices for other important minerals,
Kamoto, the most important cobalt mine in the country, collapsed after decades of capital
depletion and lack of investment.

15
The nationalization of the economy, the abrupt contraction of exports, and the simultaneous increase in the
energy bill after the oil crises.
constant
US
millions
constant
US
uBP millions of constant 0S uBP pei capita constant 0S
1960-1963
Independece
from Belgium,
political
unrest and
secessionist
attempt in
Katanga.
1975,
collapse
in copper
prices,
40%
reduction
1981,
second
collapse in
copper
prices, 45%
reduction
1986,
collapse in
cobalt
prices,
58%
reduction
1996-
1997,
first
Congo
war
1998-
2003,
second
Congo
war
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Figure 3 Gcamines production, copper, cobalt and zinc (index 1988=100) (left axis) and
export value/total exports (right axis)
Source: DRC, Statistical Annex, IMF several years
From 1988 onwards, copper production declined from some 470,000 metric tons to about
34,000 metric tons in 1995. The sharp decline in Gcamines is presented in Figure 3 and
Table 1. From 1988 to 1995, copper production dropped by 90 percent. Production of zinc, a
byproduct of copper mining was down to only 4 percent of its 1988 level, and ceased to be
produced in 1999. Manganese exploitation ceased in 1975. Cobalt production was stable
from 1988 to 1990 when the Kamoto mine caved-in, and in spite of sharp increases in cobalt
prices in 1991 production came down to 20 percent its 1988 level in 1993. In the years that
followed, diamonds surpassed copper as main export, with 30 percent of total exports.
Mining as a share of GDP was reduced from 11.3 percent to 4.7 percent in five years (see
Table 1).

L 1 L C C Z
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Table 1 DRC: The collapse in mining and its impact

1988 1989 1990 1991 1992 1993 1994
Mining production (000 tons)
Copper
468,4 442,8 355,7 236,1 147,3 48,3 33,6
Cobalt
10 9,3 10 8,6 6,4 2,2 3,6
Zinc
61,1 54 38,2 28,3 18,8 4,2 2,5
Mining sector (including all mining production)
Annual changes (%) -7,5 -3,6 -15 -22,8 -36,3 -17 -25,4
As % of GDP
11,3 11,1 10 8,5 6 5,8 4,7
Transportation (in tons per km)
ONATRA
900 857 754 412 193 124 95
SSCC
1.701 1.659 1.340 815 448 169 193
Aggregate statistics
GDP growth rate (%) 0.5 -1.4 -6.6 -8.4 -10.5 -14.5 -7.2
Total exports (US million) 2.202 2.131 1.631 1.288 1.144 1.271 1.451
Gcamines exports (US million) 1.389 1.265 896 535 232 176 295
Gcamines/Total exports (%) 63.1 59.4 54.9 41.5 20.3 13.8 20.3
Other exports 813 865 734 752 911 1095
Diamonds 31% 30% 29% 31% 34% 27%
Crude oil 20% 26% 22% 21% 14% 11%
Coffee 15% 13% 14% 7% 7% 14%
Source: The DRC, Statistical Annex, IMF (several years)
The impact from Gcamines collapse was huge and affected the economy as a whole, with
visible consequences in all sectors, industries and provinces.
- Firstly, a fiscal crisis developed as Gcamines was the main source of revenues for
the central Government. From 1990 to 1995, the company experienced huge losses.
Strapped for revenues, the government responded by printing money to cover public
expenditures and the regimes expensive lifestyle, generating a huge inflationary
spiral. Bankrupt by 1991, the Government could not service its debts nor invest and
pay the wages of civil servants and the army. In September 1991, unpaid soldiers
mutinied throughout the country and led mass lootings (grands pillages) that
targeted private, public and industrial assets. New riots erupted again in December
1992, when soldiers, demanding payment of salary arrears, conducted another
campaign of lootings in the main cities. A month later, after rejecting the payments
received in new denomination bills, the soldiers looted again (1,000 were reported
dead in Kinshasa.)
- Secondly, an external crisis developed as Gcamines was the main provider of hard
currency and foreign reserves. From 1989 to 1995, total value of exports came down
from US$ 2.2 billion to US$ 1.4 billion. Without hard currency and willing external
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lenders, imports collapsed from US$ 2 billion to US$ 870 million over the same
period.
- Thirdly, rail and river transportation also came to a virtual standstill as the country
lost its capacity to adjust tariffs in the face of high inflation, high oil prices, and a
collapse in exports to generate foreign currency and re-invest in capital equipment. In
1995, total cargo trade was about 10% of the levels in 1988. The indirect impact of
the collapse of Gcamines left profound marks that are still felt across the country
today. As the transportation system in the country consisted in rail and river networks
plus a large number of feeder roads connecting every town to rivers/rail, the collapse
of ONATRA and SNCC amplified the negative impact for the rest of the economy.
ONATRA could not operate the ports of Matadi and Kinshasa, and the vital Kinshasa-
Matadi railway stopped operating. Private operators stepped in to ensure vital river
transport and trade along the Congo River. The more remote provinces of Katanga,
Maniema, Orientale, the Kasas and the Kivus suffered a great deal from this forced
economic isolation. The consequences are still visible today where large parts of the
population are disconnected from trade routes and services, in particular in the rural
areas. The agriculture sector that dependent upon these regular trade routes by river
and rail was hard hit. Agriculture collapsed in several provinces.
- Fourthly, the Central Bank became bankrupt as monetary and fiscal policies were
misguided and/or poorly implemented; most banks had closed by 1993. The Zare,
which replaced the Congolese franc in 1967, was (unrealistically) priced at Z1 for
US$0.50 in 1967. By 1985, after a series of devaluations, it was Z50 for US$1, and
by 1990 the official rate was Z719 per one dollar. In 1991, devaluation brought the
Zare to its black-market value: Z15,300=US$1. Hyperinflation continued unabated.
By the end of 1992, the new rate was Z1,990,000=US$1. By the end of 1993 it was
Z110,000,000=US$1.
- Fifthly, the Government stopped honoring its public debt to utility companies, public
enterprises and private actors. By the end of1995, the Government owed US$ 217
million to SNEL (electricity) and US$ 156 million to REGIDESO (water.)
Gcamines, REGIDESO and other public companies owed SNEL other US$ 152
million. A domino effect of bankruptcies in the public companies and para-statals
was set in motion
By the mid-1990s, the country faced a risk of virtual disintegration due to hyperinflation,
financial, economic and growth collapse and increasing internal political pressures in the
aftermath of a wave of Africa-wide democratizations (these political pressures forced
Mobutu, for example, to allow political parties for the first time
16
.) From 1990 to 1995, the
contribution of the industry, manufacturing and services sectors to the GDP plummeted,
pushing the economy into subsistence agriculture (see Figure 4). By the end of 1995,
income per capita was only one third its pre-independence levels.

16
Weakened by the end of the Cold War, Mobutu lost the sympathy of the West and in September 1991 the IMF
declared the country un-eligible for loans and grants.
15
16 | P a g e

Figure 4 DRC: Sector evolution in % of GDP

Source: WDI

1.4 The 1990s and early 2000s: the conflict years

Leveraging its role as a Cold war strategic proxy, the Mobutu regime sought to play an
ambitious regional role in Africa, by supporting and propping up regional allies. The regime
supported the political struggle of Savimbi in Angola or the Habyarima regime in Rwanda,
for example. Following the 1994 genocide in Rwanda, the Mobutu regime was had lost an
ally and was faced with an adversary in Kigali. By 1996, tensions in Rwanda spilled over into
Zare.
By the mid-1990s, Mobutu was ailing, his power diminished and the economy was in
shambles. Several opposition groups joined a Tutsi militia led by Laurent-Desire Kabila and
supported by Angola, Rwanda, Burundi, Tanzania, Zambia, Zimbabwe and Uganda. A
regional coalition was formed with the purpose of ousting Mobutu. In 1997, after a swift
military campaign, Laurent Kabila overthrew Africa's longest-ruling dictator. Mobutu left in
exile, and Laurent Kabila became self-proclaimed president. A second war erupted in the
DRC in 1998 against Kabila. After his assassination in 2001, Laurent Kabila was succeeded
by his son, Joseph Kabila. By the end of the second Congolese wars in 2003, the per capita
income represented 25 percent its 1960s levels.

3
0
4
0
5
0
6
0
%

o
f

G
D
P
1990 1995 2000 2005
Source: WDI
Agriculture
4
6
8
1
0
1
2
%

o
f

G
D
P
1990 1995 2000 2005
Year
Source: WDI
Manufacture
1
5
2
0
2
5
3
0
3
5
%

o
f

G
D
P
1990 1995 2000 2005
Year
Source: WDI
Industry
2
0
2
5
3
0
3
5
4
0
%

o
f

G
D
P
1990 1995 2000 2005
Year
Source: WDI
Services
16
1.5 Explaining a six-year gro

Until the end of the Congolese w
in per capita income: in 1986, 1
growth in per capita income m
years) when the country recove
(two years) due to favorable com
per capita income has been nega
high rates of population growth a
The inflexion point in the grow
second Congolese wars, follow
Since 2003, DRCs positive GD
Deviation from Sub-Saharan t
2005/2006, a period surrounded
policies that resulted in inflation
military conflicts limited to spec
armies and armed rebel groups ar
Figure 5 DR
Source: WDI, 2009.
Compared to other post-conflict
GDP growth (see Figure 6). Lo
for several post-conflict countri
performing post-conflict country
Uganda, but worse off than Rwan

owth acceleration
wars in 2003, the DRC saw only intermittent po
1973 and again 1971 (one year each.) The on
more than one year happened between 1962 an
ered after independence; and again between 19
mmodity prices. Apart from these particular yea
ative every single year; as the result of combin
and stagnant or negative growth in total output (
wth stagnation and/or collapse came toward th
wing the power-sharing agreement in 2002 (se
DP growth has been similar to Sub-Saharan Afr
trend happened only during the presidential
d by political, social tensions as well as fiscal a
nary pressures. A fragile peace has been mai
cific areas in the eastern part of the country, w
re vying for the control over the immense natura
RC: Recent evolution compared to SSA
countries, the DRC shows average performanc
ooking at the GDP levels in the year of the pea
ies, the DRC achieves more growth than Bur
y), and is very close to the performance of Moz
nda or Sierra Leone.
17 | P a g e
ositive growth
nly period of
nd 1963 (two
968 and 1969
ars, growth in
ned factors of
(see Box 1.)
he end of the
ee Figure 5).
rica averages.
l election in
and monetary
intained, with
here different
al resources.

ce in terms of
ace agreement
rundi (a low-
zambique and
17
18 | P a g e

Figure 6 DRC and other post-conflict countries*, GDP evolution in time-event since
peace agreements

*Peace agreement dates: Burundi: 2000; Rwanda: 1995; Uganda: 1987; Sierra Leone: 2000;
Mozambique: 1992; DRC: 2002.

The continuous years of positive growth in per capita income since 2002reflecting the
peace dividend effectis the result of massive aid, private investment flows in the mining
and forestry sectors and large donor-funded basic infrastructure rehabilitation projects. Each
of these sectors indeed presents a positive evolution between 2000 and 2008 (see Table 2).
Extractive industries are largely dominated by mining, the main destination of FDI flows in
the DRC. The main contributors to the services sector are trade, commerce and construction
services including public works. Finally, agriculture accounts for a dynamic forestry sector
and a large but lethargic subsistence-based farming.

Table 2 Congo DRC: Evolution of GDP by Sector, 2000 2008* (annual change)
2000 2001 2002 2003 2004 2005 2006 2007 2008
Agriculture, forestry, livestock,
hunting and fishing
-35.8 -92.4 6.5 9.9 4.4 15.6 23.6 20.6 9.7
Extractive industries -31.9 4.1 30.3 25.6 29.7 22.9 2.1 5.4 27.8
Manufacturing industries 0 -36.9 7.9 -2.4 13.9 3.2 0.7 3.4 1.4
Electricity and water 0.5 3.2 0.7 1.3 -1 0.2 0.6 0.2 -0.04
Construction and public works -27.3 13.4 15.2 20.3 19.6 20.6 18.1 7.1 21.0
Trade and commerce -32.3 -6.5 9.1 10.9 15.3 22.4 28.8 38.8 22.0
Transportation and telecomm -10.9 12.3 21.2 19.7 8.4 6.7 11.8 9.8 5.6
Market services -4.4 -29.2 9.9 6.2 7.1 6.4 7.9 6.7 5.1
Non market services 7.9 -27.0 1.9 4.7 3.5 -0.9 1.9 1.9 1.0
Source: DRC authorities
(*) Revised for 2006-2007 /Estimated for 2008

5
0
1
0
0
1
5
0
2
0
0
-5 0 5
Year since end of conflict
Burundi Rwanda Uganda
Sierra Leone Mozambique Congo, Dem. Rep.
Source: WDI
18
19 | P a g e

By 2007 the economy returned to the pre-war (1994) levels in terms of output composition
(see Figure 2) a return to the years when the economy was weak and impoverished. The
economy is dependent on agriculture (47 percent), followed by services (30 percent), industry
(27 percent) and a small manufacturing sector (6 percent.) A large informal economy, mostly
at subsistence levels, remains unrecorded. In terms of mining production, only cobalt shows
a positive evolution, with copper production still at record low levels. Cobalt production
compares to the 1988 level, while copper remain at only 10 percent of its 1988 production
levels and zinc production collapsed (see Figure 7 for the evolution of the main minerals
and their contribution to total exports.) The mining sectors contribution to total exports
remains low, down from 60 percent in 1988 to around 15 percent in 2005.
Figure 7 Copper, cobalt and zinc production (index 1988=100) (left axis) and export
value/total exports (right axis)

Source: DRC, Statistical Annex, IMF several years

Investments made through the national investments agency Agence pour la Promotion de
lInvestissement (ANAPI)
17
provide a partial picture of the provinces that attracted private
investors during the post-conflict reconstruction period (see Table 3). Kinshasa is by far the
most common destination for new investment with 44.5 percent of the projects concentrated
in the capital. Katanga (13.3 percent) and Bas-Congo (6.1 percent) follow. At the bottom,
are Oriental (1.3 percent), South Kivu (0.9 percent) and Maniema (0.5 percent.) This analysis
by regions and provinces suggests particular constraints to economic growth in the DRC.
Firstly, security continues to discourage investment, as the three worst ranked provinces are
all affected by military conflict. Secondly, mining continues to be a big economic pole, as
proved by the important role of Katanga. Thirdly, Kinshasas primacy is indicative of a
highly concentrated economy, but also of the localized supply of key inputs like human
capital, finance and infrastructure.

17
Mining and forestry projects are no eligible for taxes exception and therefore not considered in ANAPIs
statistics. Also, ANAPI reports data on intended projects. Only data on execution is available for 2008, the
year when all intended projects where being executed.
L 1 L C C Z
19
20 | P a g e

Table 3 The DRC: Private investment by Province, 2003-2008
2003 2004 2005 2006 2007 2008* Total %
Kinshasa 39 49 51 46 53 46 284 44.5
Inter-Province 40 36 26 19 10 21 152 23.8
Katanga 15 6 12 9 18 25 85 13.3
Bas-Congo 8 8 5 5 5 8 39 6.1
Kasa
Oriental 7 2 3 4 2 1 19 3.0
Nord-Kivu - 2 - 5 4 3 14 2.2
Equateur 1 2 2 2 3 1 11 1.7
Kasa
Occidental 1 3 2 1 2 1 10 1.6
Bandundu 1 3 3 0 0 0 7 1.1
Province Orientale - 2 - 3 1 2 8 1.3
Sud Kivu - 1 - 2 2 1 6 0.9
Maniema - - - 0 0 3 3 0.5
Total 112 114 104 96 100 112 638 100
Source: ANAPI
*Includes ongoing and completed projects
** Excludes mining and forestry

1.6 Looking at the reconstruction challenge
The war years have worsened an already bankrupt economy and left a degrading
infrastructure to completely collapse. Poverty has increased and millions have been displaced
(the majority of the 3.8 million displaced people who died in the war were victims of diseases
and starvation from the wars.) The institutional environmentalready dysfunctional and
crippled by chronic corruption and kleptocracyretreated into stasis.
The economic performance prior to the wars provides little information in terms of revealed
comparative advantage by sectors (except for mining and forestry.) Mobutus ill-conceived
industrialization strategy dramatically failed at a high cost for the country, as it neglected
agriculture and destroyed the fledgling industrial capacity. Industrialization created a
meager industrial sector, most of which closed by the mid-1990s
18
. Manufacturing was
concentrated in Kinshasa, Lubumbashi and Kisangani, consisting in the production of
consumer goods for domestic consumption. The country still has the potential to be a net
exporter of agriculture; it reportedly exported food from the Kivus to Europe in colonial
times. But, it has been importing food since the 1980s; and, in some provinces (South Kivu
and Katanga) over 10 percent of the population is at risk of food insecurity
19
. Setting
priorities is complicated, in post-conflict situations where the economic base has been totally
or partially destroyed and institutions weakened. Reconstruction, rehabilitation and the
establishment of governance institutions will necessarily top the list of urgent policies. With

18
19
FAO (2008).

20
21 | P a g e

over 70% of its population below the poverty line, poverty alleviation should remain the most
pressing concern for the DRC.
What the study and the direct observations have clearly illustrated is that these macro-and
micro-challenges cannot be solved by the central Government alone. They would require a
real commitment and coordinated effort by the central and provincial authorities, in
collaboration with the private sector. External public and private partners must also bring
their contribution to bear for the stability and the development of the DRC, and the region.

2. The Hausmann, Rodrik and Velasco Diagnostics Framework
2.1 Understanding the Hausmann, Rodrik and Velasco Diagnostics
Framework
This report provides an assessment of the binding constraints to growth in the DRC, applying
the Growth Diagnostics framework developed by Hausmann, Rodrik and Velasco (HRV),
which have become a standard tool for policy analysis and strategic prioritization since it was
developed in 2005. The HRV framework is designed to encourage highly contextual policy
reforms and interventions supported by economic analysis, rather than the laundry list
approach of implementing a generic list of best practice policies.
The Growth Diagnostics aims to identify the most constraining challenges for private
investment and economic growth in a given economy at a specific point in time. The
framework identifies and ranks constraints to investment by following a decision tree and
nodes (see Figure 8). The analysis follows an elimination-by-iteration process aimed at
identifying the most binding constraint to growth.
Moving down the decision nodes of the growth diagnostics tree, the analysis must take into
account that the DRC suffers from systemic and sector-specific challenges. The decision
nodes analysis strives to rigorously isolate and identify a short list of the most binding
constraints to growth and private investment. Thus, the model helps to prioritize bottlenecks
that pose the biggest challenge to the economy, enabling policy-makers to focus their
interventions on one bottleneck at a time. Challenges that are discarded as non-binding
constraints at a given time in a specific contextual situation may be important at another point
in time. They are not meant to be irrelevant, undeserving of donors attention and support.
21
22 | P a g e

Figure 8 The HRV (2005) Growth Diagnostics Decision Tree

To identify the potential binding constraints, the analysis follows the following four
criteria
20
. The constraints must present a:
High shadow price;
Growth response to changes in constraint;
Firms trying to overcome constraint;
Existing/more dynamic industries are not intense in the constraint.

Applying the HRV framework at the provincial level, the growth diagnostics study includes
five province-level analyses.
The rational for a sub-national analysis is many-fold. Firstly, the DRC is a large country with
stark differences in terms of geography, endowments, economic activity, poverty level and
economic potential. A sharp diagnostics with context-specific and province-specific analysis
would allow for a better mapping of potential constraints to growth and poverty reduction as
well as by sectors/provinces. Secondly, with low mobility of goods and factors within the
country and large income differences among provinces, an analysis of the differences in
human capital, access to credit and the other growth diagnostics at provincial level would be
important. Thirdly, the provinces present low levels of economic diversification and tend to
specialize on the basis of their specific natural and human endowments. A one-size- fits-all
would thus be inadequate for policy-making at the province-level.

The Provinces were selected to provide a representative sample and include the most
important provinces in terms of economic activity (Kinshasa and Katanga), two post-conflict
provinces (South Kivu and Orientale) and one of the poorest provinces in the DRC
(Bandundu.) In order to establish the context for the analysis, as well as the analytical

20
Hausmann et al. 2008. A Growth Diagnostics Mindbook.
22
23 | P a g e

structure of the HRV framework, the reader interested in a particular province should first
read the national report and then the particular provincial study.

The HRV framework presented here is complemented by a brief poverty diagnostics aimed at
identifying key policy issues in formulating poverty reduction strategies.

3. Poverty Diagnostics
This section introduces the following Growth Diagnostic by providing a bigger picture of the
poverty situation in the country. At the national level, the poverty diagnostics provides a
more descriptive analysis of the global situation and at the province level some key binding
constraints for poverty reduction.

A multidimensional approach has been adopted in the analysis, including three dimensions of
poverty: (1) the ability to consume above an absolute poverty line, (2) the ability to attend
primary and secondary education, and (3) the ability to access health services. The food-
intake based poverty line is the official measure used by the GoDRC in the Poverty
Reduction Strategy Plan, and we consider education and health as indicators of the population
capabilities to engage in the labor market
21
.

In order to map policy decisions to target the poor, the analysis differentiates between causes
and symptoms, or between demand-side and supply-side issues. For example, in secondary
education, we may observe that children are not attending school, but may not conclude that
the solution will come from improving access to education. If the problem stems from the
demand side (i.e. students do not attend school because pay-off is low), low levels of
education would be more of a symptom than a cause, and returns to secondary education
would be particularly low. Under these circumstances, improving access to education will
have little or no effect.
3.1 Measuring Poverty

The consumption component of poverty is computed using the 1-2-3 survey implemented in
2004 in Kinshasa and in 2005 in the rest of the country. The level of consumption was
computed using monetary consumption of different kinds, auto-consumption, and transfers in
kind and rent attributed to households that are not tenants in their accommodation.
Consumption per equivalent adults was estimated following FAOs guidelines. In order to
estimate the poverty line, the daily food threshold was estimated using a normative caloric
threshold of 2,300 kcal. Prices are only adjusted for rural and urban populations, as no data is
available to impute prices by region. According to consumption patterns provided by the 1-
2-3 Survey, the final poverty line is estimated as the sum of the food threshold and the non-
food threshold.

21
Amartya Sen. Commodities and Capabilities. North Holland, Amsterdam, 1985.
23
Table 4 Pov
poverty h
Total U
National 71.3
Kinshasa 41.6
Bas Congo 69.8
Bandundu 89.1
Equateur 93.6
Orientale 75.5
N. Kivu 72.9
Maniema 58.5
S. Kivu 84.7
Katanga 69.1
Kasai Oriental 62.3
Kasai Occidental 55.8
Source: DRC poverty Diagnostic (20

Using consumption poverty mea
the headcount ratio, with 61.5 pe
poverty analysis using three diff
areas.) Figure 9 shows povert
identify three groups of provinc
with high levels of poverty (abov
provinces with low levels of po
Occidental. In the middle, co
Katanga, North Kivu and Orien
provinces as the unit of analysis
of the situation in the DRC and
constraints for each region.

Figure
Source: DRC Poverty Dia

verty Measures by Province and Area
headcount (%) poverty gap (%) squared poverty gap
Urban Rural Total Urban Rural Total Urban R
61.5 75.7 32.2 26.2 34.9 18.0 14.1 1
41.6 n.a 13.4 13.4 n.a 5.9 5.9
70.5 69.6 23.8 29.9 22.3 10.6 15.9
71.9 91.7 44.8 29.9 47.1 26.6 15.9 2
83.5 95.3 50.7 44.4 51.8 31.4 27.4 3
83.4 73.6 33.9 38.6 32.8 18.9 21.5 1
67.6 74.3 32.2 27.9 33.4 18.4 14.3 1
69.4 57.1 20.9 27.7 20.1 9.8 13.8
84.6 84.6 38.6 42.8 37.4 20.9 25.9 1
67.1 70.2 32.5 32.8 32.4 18.4 19.0 1
63.5 61.5 26.9 26.2 27.5 14.8 13.4 1
76.1 52.7 21.5 30.9 20.1 10.7 15.8
006)
asures, average poverty rate in the country is 71
ercent urban and 75.7 percent rural poverty (See
ferent poverty measures by provinces and for u
ty headcount levels over the DRC provinces.
ces according to the poverty concentration. T
ve 80 percent) are Equateur, Bandundu and Sou
verty (below 60 percent) are Kinshasa, Maniem
ome the other five provinces: Kasa Oriental,
ntale. Given this wide heterogeneity, it is usefu
s. Therefore, the national study provides a broa
d the provincial studies describe in greater detai
e 9 DRC: average poverty by province
agnostic 2006, using 1-2-3 Survey
24 | P a g e
p (%)
Rural
19.8
n.a
9.2
28.3
32.1
18.4
19.4
9.3
19.5
18.1
15.8
9.9
.7 percent for
e Table 4 for a
urban vs. rural
. One could
The provinces
uth Kivu. The
ma and Kasa
, Bas Congo,
ful to think of
ad description
il the binding

24
25 | P a g e

Figure 9 clearly illustrates that Kinshasa is an outlier. The capital of the DRC has a poverty
prevalence of 41.6 percent, as measured by the headcount ratio, compared to 71.3 percent at
the national level. It also represents 35 percent of the population. At the other extreme, is
Equateur with a poverty prevalence of 93.6 percent, more than twice as much as Kinshasa.
Poverty levels in Kinshasa are lower even when compared with the level of urban poverty in
other provinces. The lowest level of urban poverty out of Kinshasa can be found in the Kasa
Oriental, where 63 percent of the population is under the poverty threshold (see Table 4).

Looking at a different measure of human deprivation, in this case the Human Poverty Index,
the analysis shows the evolution of poverty levels over time. In general, the trends show a
stable situation with 40.7 in 2001, 42.1 in 2003 (a higher index means deterioration) and 41.2
in 2006
22
. The ranking on the Index deteriorated by 4 percent between 2001 and 2003, and
then partially recovered between 2003 and 2006.

One way to map the conclusions from this analysis into policy recommendations is to
correlate occupation and poverty levels. At the national level any attempt to reduce poverty
must focus its attention on agriculture. About 40 percent of the labor force in the country is
employed in agriculture, as much as 60 percent of the household derive income primarily
from agriculture
23
and three-quarters of the urban population are poor. Therefore, any
economic policies focused on improving the agriculture sector will have an important
positive impact on poverty. Even if the country has labor mobility, always from rural to
urban areas, urban areas are unable to absorb such a large labor supply. In Kinshasa, the
focus must be on recovering the secondary sector. Currently, after the collapse of the
industrial sector, most of the economic activity is concentrated in Services and Government,
which includes NGOs, which explains 75 percent of total income generated. Manufacture
explains only 10 percent of total income generated in Kinshasa. Once Kinshasas processing
capacity is reestablished, the provinces could increase production for agro industry and local
consumption.
3.2 Poverty and Education
At the national level, there are significant variations in terms of primary and secondary
school enrollment rates. Kinshasa is again an outlier on both counts. Secondary school
enrollment in Kinshasa is over twice as much as the national average. Orientale is at the
extreme end of the spectrum with only 15.5% of school enrollment in secondary education.

22
UNDP 2007
23
Authors calculation based in the 1-2-3 Survey 2004-2005
25
Figur
Source: EDS DRC (2007)

Data paucity makes it difficult
Looking at the dynamic compon
percent between 2001 and 2005
number went from 76.3 percent
people, and the downward press
be in a worse situation because o
In terms of gender equality, the
Looking at the percentage of th
secondary education the male/fe
only 1.14 for Kinshasa.
Figure

24
Using MICS 2001 and 1-2-3 (2005).
re 10 DRC: Average enrollment rate

t to add a dynamic component into the pove
nent of education, the DRC improved from 51
in terms of primary net enrollment, but in Kinsh
t to 74.8 percent
. This trend reflects the larg

sures on Kinshasas social indicators. So the pe
of -cross sectional indexes are just averages over
study shows that Kinshasa is again above the n
he population between 15 and 49 years old w
male ratio is 2.03 at the national level. The sam
e 11 DRC: Average poverty by gender

net piimaiy school eniollment iate
26 | P a g e

erty analysis.
percent to 55
hasa the same
ge inflows of
eople may not
r time.
national level.
with complete
me number is

26

3.3 Poverty and He
Heterogeneity is also observed
Kinshasa has almost double
doctor/population is 3.6 times h
times higher. A nuanced picture
Figure 12 shows that provinces l
in terms of infant vaccination. A
Occidental show the lowest cov
under ten percent.
Figu
Source: MICS-2 (2

Kinshasas strong performance d
Even with substantially higher in
substantially better in Kinshasa
Kinshasa compared to the rest o
though health outcomes are quit
not improve the situation.
Table 5 D

Percentage of children wi
Neonatal mortality rate (2
2007 Infant mortality rate
2001 Infant mortality rate
Ratio doctor-population
Water connection rate

Source: EDS 2007, DHS 2007,
ealth
in health outcomes. In terms of access to he
the national rates of vaccinated children.
higher in the capital, and water connection rat
emerges from looking at the different provinces
like North Kivu and Bas-Congo are actually ab
At the other end of the range, Equateur, Orienta
verage (below twenty percent) and South Kivu
ure 12 DRC: Children vaccination

2001)
disappears, however, when moving from access
ndicators in access to health services, health outc
a. In fact, neonatal mortality rates are actua
of the country (see Table 5). What this shows
te bad in Kinshasa, improving access to health
DRC and Kinshasa: Health indicators
Kinshasa DRC
ith birth weight <2.5 kg 7.20% 7.70%
2007) 31 27
e (EDS) 73 92
e (MICS 2) 83 126
1/4865 1/17746
52.80% 10.90%

and MICS 2001

27 | P a g e
ealth services,
The ratio
te is almost 5
s.
bove Kinshasa
ale, and Kasa
u, a coverage
s to outcomes.
comes are not
ally higher in
s is that even
h services did
27
28 | P a g e

Looking at symptoms and causes, the study suggests that precarious health outcomes are
probably symptomatic of issues beyond access to health services, such as lack of employment
and shelter. In the rest of the country, economic activity is linked to rural agriculture and
mining, and therefore lack of access to health services may become a cause of precarious
health outcomes. These issues are discussed in greater detail in the provincial studies.
4. Applying the Growth Diagnostics Framework
Applying the HRV framework, the study will explore the relative scarcity of different factors
and the potential constraints they might constitute for growth and investment. The approach
considers, in particular, the constraints that might prohibit the marginal investor from
investing. The chapters below will discuss whether the most binding constraint lies in: i) lack
of access to finance; ii) problems with appropriating the fruits of investments; or iii)
inadequate social returns to compensate for the opportunity cost of investments.

4.1 Is lack of access to finance the constraint?

Figure 13 The HRV decision tree

4.1.1 Is it lack of access to international finance?
Access to finance has been a long-standing challenge for the DRC, due to the countrys risk
performance. The country has long grappled with wars, corruption, lack of accountability,
and instability of the macro-economic framework. This has manifested in erratic state
interventions (i.e. nationalizations), currency mis-management and weak institutions (i.e. the
Central Bank.) All of these factors have contributed to increasing the country risk and
discouraging investors.
28
29 | P a g e

From the 1960s, Congo became heavily dependent on aid and international financing. This
dependency was made even more severe in the late 1970s-1980s with the collapse in
commodity prices.
The time periods marked by a lack of access to international finance are correlated with sharp
reductions in the GDP and with crises in the balance of payments. Periods of economic
downturn were brought about in the aftermath of the collapse of Gcamines in the 1980s and
again following the oil crises in 1973 and 1979. In 1991, for instance, the IMF declared the
DRC ineligible for loans. As a result, foreign direct investments (FDI) dried up and only
recently begun to return. As Figure 14 shows, FDI net flows were very low and often
negative for years between 1980 and 2006. In addition to the negative investment climate
mentioned above, FDI flows remained low because State-owned companies, including
Gcamines, were not able to enter into joint ventures with foreign investors. The stock of
FDI has more than doubled to US$ 2.5 billion since 2006(or five-fold their pre-war levels)
when the mining sector re-opened to private investors.
Figure 14 DRC: Foreign direct investment and GDP growth, 1996-2006

Source: UNCTAD (2009), IMF (2007), World Bank (2009)
29

Domestic investment grew at a fa
in 2005 (see Figure 15.) Since 2
by external aid flows and capit
percentage points higher than do
high rates of domestic investmen
percent show that international fl
However, the country risk sti
management. Private investmen
the political pre-electoral turmoil
remain wary of the insecurity
characterizes the DRC.
Figure 15 DRC: Gross

0
5
1
0
1
5
%

o
f

G
D
P
1997 2002
Total Private
Source: IMF
Gross Domestic Inv
ast pace from 2001 and stabilized at about 10 pe
2003, low and declining savings rates have been
al inflows that have boosted domestic investm
omestic savings, as measured in share of GDP. T
nts of 13 percent of GDP and of domestic savin
lows have finally returned to the DRC.
ll remains high and dependent on good fis
nt stopped growing in 2005 (see Figure 15), pro
l and a turbulent period of fiscal mis-manageme
y and the poor business environment that
Domestic Investment, Savings and the Current Acco
2007
e Public
estment
-
5
0
5
1
0
1
5
%

o
f

G
D
P
1997 2002
Total Private
Source: IMF
Gross Domestic Savings
30 | P a g e
ercent of GDP
n compensated
ment up to 10
The relatively
ngs close to 5
scal/monetary
obably due to
ent. Investors
overall still
ount

2007
Public
30
31 | P a g e

Moreover, contract enforceability and a weak legal and regulatory framework continue to
affect large investments in mining, forestry, and infrastructure. Interviews with
representatives of the timber industry have highlighted the uncertainties placed on long-time
investorse.g. with the new tax regime introduced by the new forestry code and various
provisions thereof taking effect retroactively
25
. Similarly, tensions have recently risen
between representatives of the mining sector and the GoDRC, over a protracted two-year
review of 61 mining deals, including several major mining projects. The GoDRC claimed the
review would help clarify the circumstances surrounding opaque deals that were made during
the countrys turbulent times in 1998-2003. Large mining projects in the Katanga province
have been cancelled and/or put on hold, such as First Quantum US$500 million copper
project and Freeport-McMoRan Tenke Fugurume US$2 billion world-class copper and cobalt
mining and processing operation. Negotiations are ongoing on both projects, at the time of
writing.
The uncertainty surrounding the mining concessions has hit the mining companies at a
particularly delicate time, as copper prices have dropped and international finance all but
dried up as a result of the global financial crisis
26
. A recent Senate report published in
September 2009 highlights the failure of anti-corruption measures and mis-management in
the mining business, pointing that: no state service is up to date to give reliable figures on
the number of operators in the mining sector, their quality and the quantity of products
exported.
27

At a macro-level, progress towards reaching the HIPC completion point as well as the return
of peace and security to the provinces of Orientale and the two Kivus would contribute to
further enhancing the countrys attractiveness to FDI.

25
Interviews by the authors. Kinshasa, DRC. 25 July 2009. Also, Kisangani, DRC. 27 October 2009. Also,
Kinshasa, DRC. 30 October 2009.
26
Interviews by the authors, Kinshasa, DRC. 30 October 2009. Also, interviews. Washington, DC. 10
December 2009.
27
See the Mutamba Report. December 2009.
31
32 | P a g e

4.1.2 Is it lack of access to domestic finance?


Financial services are scarce. The financial system includes commercial banks (11), micro-
credit finance (28) and other institutions
28
. The number of bank accounts is estimated at
between 60,000 and 100,000 accounts with about 60 branches across the countrya ratio of
one branch per one million inhabitants. The banking system is very small in size, with total
banking sector assets accounting for around 10% of GDP in 2006, below the average ratio of
25% in the rest of SSA
29
. Total credit to the private sector is also small compared to averages
in SSA at 3% of GDP (in 2006) in the DRC vs. 12.3% for SSA
30
. We should note that these
ratios have been growing at double digits rates since 2006. Moreover, about 90% of the loans
are short-term loans, covering overdrafts, working capital and letters of credit.
Further, financial and credit coverage is exclusively urban and limited geographically, with
only a few branches outside of Kinshasa, in cities like Matadi, Lubumbashi, Goma or
Bukavu.

28
IMF (2007). Democratic Republic of the Congo: Selected Issues and Statistical Appendix, IMF Country
Report No. 07/329.
29
Report No. 07/329.
30
Report No. 07/329
32
33 | P a g e

Finance and the investment climate
Overall, at a national level lack of access to credit and credit rationing appear to be major
bottlenecks. Lack of finance is the key constraining factor by business people
31
. Indeed,
according to the Investment Climate Assessment, access to finance is the second most
constraining challenge for doing business in the country, as seen in Table 6. These findings
are corroborated when separating the ICA by sectors and provinces, even though credit
rationing affects SMEs more severely
32
.
Table 6 DRC: Most severe constraint (2006)
2003
Constraint % Ranking
Electricity 47.06 1
Access to Finance 13.82 2
Competence of Informal Sector 8.24 3
Tax rates 7.35 4
Political Instability 5.59 5
Macroeconomic Instability 3.53 6

Transport 3.24 7
Crime 1.76 8
Tax administration 1.47 9
Custom and Trade Regulation 1.47 9

Skills of available labor force 1.47 9
Telecommunications 1.47 9

Regulation on pricing and mark-ups 1.18 10
Licensing and Operating Permits 0.88 11
Access to Land 0.59 12

Corruption 0.59 12
Regulations on operation hours 0.29 13
Total 100
Source: ICA (2006)
The large majority (87 percent) of the firms surveyed by the ICA are not currently seeking
credit from financial institutions (see Table 7 and Figure 17). Twenty percent of respondents
say that they would anticipate a rejection, while another 35 percent cite the bureaucratic
procedures involved. Of the 13 percent of firms seeking credit finance, only 3.5 percent
actually have received a loan. According the ICA survey, the most common reason for being
rejected (36.4 percent) is the incapacity to match the collateral requirements (especially
important for small entrepreneurs and SMEs.) The second motive for a rejection (15.1
percent) is the incapacity to comply with the loan application (again mostly affecting SMEs.)
Only 12 percent of the rejected applications were grounded on valid reasons of insufficient
profitability.
While these numbers point to the challenges of a weak banking system, they are more telling
of legal and regulatory framework in the DRC. First, financial illiteracy seems to be a
problem even in urban areas. Second, the incapacity to provide collateral is the main motive
for being denied credit finance. This, again, could be due to issues of low assets due to the

31
Interviews by the Authors. October, 2009.
32
As well as in interviews by the authors on a recent mission. October 2009.
33
34 | P a g e

economic crisis and the lootings, but also might be due to the legal uncertainty of property
rights, which would affect agriculture and agro-pastoral enterprises. Land assets are difficult
to use as collateral, given the legacy nationalizations, expropriations, wars, and an arcane
system stemming from modern and customary land law and a dysfunctional judiciary system.
As the ICA only surveyed firms in four urban cities, of which 80 percent were located in
Kinshasa, and only in the manufacturing, retail and services sectors, the survey is not
indicative of the situation in smaller towns and in rural areas, which is likely worse.
Recent Central Bank data show a shift in the sectoral composition of credit portfolios after
2001 (see Table 7). With the removal of state monopolies in mining exploitation and the
record high prices in the mid-2000s, mining appears as the sector where credit grew the most,
while agriculture and industry lost out in terms of their share of credit allocation compared to
pre-war years.
These last findings have momentous implications for growth and poverty reduction in the
country. Indeed, the two sectors of agriculture and industry account for nearly 70 percent of
GDP; they employ the majority of the population, including much of the poor, and yet these
sectors are the most constrained by lack of credit finance.
Table 7 Credit to the Private Sector by Activity (share over total)
1994 2001 2002 2003 2004 2005 2006 2007
Agriculture 29.4 26.1 30.6 11.0 8.2 8.1 9.0 5.9
Mining 0.6 0.7 0.6 0.7 14.9 12.3 6.8 8.0
Industry 15.8 19.5 16.2 15.6 16.3 11.9 6.9 6.2
Public Works 1.7 2.1 1.4 1.1 3.1 5.4 3.7 1.7
Energy 0.1 1.7 0.4 1.4 0.7 3.3 0.2 3.9
Transport 10.3 7.0 4.3 6.6 7.6 5.8 18.3 10.2
Distribution 19.4 21.0 22.8 33.7 17.5 16.1 19.7 14.6
Commerce 3.21 0.11 0.32 n.a. n.a. n.a. n.a. 0.19
Others 19.45 21.76 23.52 29.84 31.71 37.24 35.39 49.48
Source: BCC (2007)

By contrast, international foreign investors are able to bypass the constraint by self-financing
and/or borrowing on international capital markets. Such is the case of Bralima, owned by
Heineken, which modernizes its production plant around Kinshasa, as well as foreign mining
and timber companies.
The study finds that high cost of credit is not a constraint to credit finance. As with the
ICA, only 7 percent of the surveyed firms cite high cost of credits as the main reason for not
seeking credit in 2006
33
. Credit to the private sector and interest rates (interbank rate) have
both increased between 2004 and 2008, invalidating the hypothesis that interest rates are
currently a constraint to the expansion of credit (see Figure 17). Recent trends also show that
demand for credit exists, even with the current higher interest rates. Furthermore, interest
rates decreased in 2002 without generating an elastic response in credit allocation.
Consequently, a constraint other than interest rates and the cost of finance was actively
binding at the timethe authors would speculate that the war might have then been the
hidden constraint.

33
ICA (2006).
34
35 | P a g e

Thus, the current dearth in credit finance must be related to factors other than high costs, such
as poor capillarity (i.e. the absence of bank branches in rural areas and cities outside
Kinshasa); and credit rationing (i.e. banks lending primarily to specific-low risk sectors and
large international companies.)

Figure 17 DRC: Interest rate and credit to the private sector

Source: IMF (2009), BCC (2009)
Banks may be responding to real constraints posed by the context in which they operate.
Banks may have to resort to cherry picking and rationing, because of the maturity of their
deposits, 90 percent of which are short-term. Banks lend in dollars because they hold only
one percent of their deposits in Congolese francs. Banks may have to require high collaterals
and reject over one-third of credits and loans applications because they cannot enforcing their
legal rights as lenders. The legacy of hyperinflation and fiscal mismanagement may help
explain the risk-averse behavior of the banking industry.
The root causes of poor finance in the Congo must be found elsewhere, i.e. in the larger
dysfunctions of the macro-economic framework. While the study concludes that access to
finance is the most binding constraint at the national level, this does not imply that the
banking industry is at fault.
In conclusion, these complex and interrelated issues will need to be addressed before the
finance can become a real engine of growth for the country. Changing the banking
regulations and/or increasing their coverage across the country would not remove the binding
constraint of lack of access to finance if the uncertain legal framework and weak contract
enforceability remain.
Finance and households
According to the 1-2-3 Survey, only 1 percent of households report having access to any form
of credit finance. Of those households, 65 percent are financed by family-self-owned funds
and 10 percent by family- or community-based savings schemes such as tontines (see Table
8). These modest savings schemes are used primarily for working capital and as input into

billions of
CDF
Cieuit to the piivate sectoi Real inteiest iate
35
36 | P a g e

production (only 5 percent are used for investments). These findings provide further
evidence of poor finance for agriculturethe largest income-generating sector, which
provides livelihoods for the majority of the population.
Table 8 DRC: Access to Credit for Production and Investment
Occupation of Household Head
Public
Private
Formal
Private
Informal
Inactive,
Unemployed
Total
Percent of Households with access to credit 1.7 0.8 1 0.5 1
Type of Credit Obtained by a household member
Production 100 35.2 36.3 35.8
Exploitation 18.4 15.1 14.2 14.3
Import 0.2 0.2
Equipment 66.9 5.1 5.1
Other 14.6 49.7 44.6 44.6
Total 100 100 100 100 100
Source of Credit
Bank
Cooperative 2.5 1.9
ONG 22.1 11.1 9
Other formal 18 3.9 3.6
Finances 4.1 0.8
Commercial 4.4 3.6 3.6
Tontine (informal savings group) 52.1 16.1 8.1 10.4
Association 3.8 2.9
Family/friends 47.9 59.9 63.3 66.9 65.5
Employer 2.5 0.5
Other informal 9.6 2
Total 100 100 100 100 100
Source: Enqute 1-2-3 (2004/2005)

Summary
Access to finance is a binding constraint to private investment in the DRC, with the
possible exception of large foreign firms that can self-finance. Alternative sources of credit
finance for domestic entrepreneurs are scarce and limited in size and in terms. Agriculture is
the economic sector most affected by poor domestic finance. The study finds that
government failures are the over-arching binding constraint to a functioning legal and
regulatory framework, which in turn limits availability of credit finance.

36
37 | P a g e

4.2 Is it low social returns on economic activity?

Figure 18 HRV Decision Tree

4.2.1 Is Infrastructure the binding constraint?
In a land the size of the DRC (about the size of Western Europe) infrastructure plays a major
role in the economy. The transportation system inherited at independence integrated an
expansive multi-modal infrastructure network of road-, rail- and river ways
34
that used the
Congo River and its tributaries as the backbone for trade and transport. At its peak, this
multi-modal network served to integrate the country economically and geographically.
In addition, a dense network of 145,000 km secondary feeder roads, maintained by privately
by the local industries, allowed the rural centers to move their goods. This secondary
network connected to the main transportation axes to Kinshasa and Matadi to the west, and to
the Kenyan port of Mombassa to the east via the Kivus and Katanga.
The network today has all but collapsed. Several provinces like Orientale, Equateur, and
Maniema and, to a certain extent, Bandundu and the Kasas, are faced with economic
isolation. In response to the infrastructure bottlenecks, the country has been developing at
the borders, with the main industries establishing production centers next to the urban or
rural centers along the major roads and rivers.
State takeover of the main transportation routes contributed to this collapse, and have driven
the cost of transportation up. Following the Zarinization, the ONATRA and SNCC became
the two State-owned monopolies over river and rail transport
35
.

34
At independence, the country boasted 5,000 kms of waterways complementing 5,000 kms of railways.
35
ONATRA lost its monopoly control in 1979.
37
38 | P a g e

Waterways
The Congo River can be considered as DRCs highway, crossing the country from east to
west and south to north, and to the Atlantic Ocean.
Two other riversthe Ubangi and the Kasaare navigable all year round and serve as the
main axes connecting the provinces within the country and to the Congo River. Lake
Tanganyika provides access to Tanzania and Burundi. The Ubangi River in Equateur is
navigable from the Congo River (south of Mbandaka) to Bangui, the capital of Central
African Republic. The Kasa River is navigable from the Congo River (north of Kinshasa) to
Ilebo in Kasa Occidental, crossing Bandundu Province along its way. Through this network
of river and railway transportation, the important productive areas are all connected to the
Congo River.
Railways
The railways were developed to complement the waterways in their impassable sections.
Except for the Benguela Railway connecting Lubumbashi to the Angolan port of Lobito
36
and
two other lines linking Katanga to Tanzania and Zambia, most rail lines connect at the
juncture with river ports or to circumvent the navigation obstacles of waterfalls and cataracts.
The most extensive of SNCCs lines, connecting Lubumbashi to the railhead port in Ilebo
(Kasa Occidental), was in fact a continuation of the Kasa River by land into Lubumbashi.
This corridor used rail lines (SNCC) from Lubumbashi to Ileboconnecting Katanga and the
two Kasasthe Kasa and Congo rivers from Ilebo to Kinshasa and railway (ONATRA)
from Kinshasa to Matadi. This multimodal path was the main transport route for Katangas
minerals to Kinshasa.
Roads
For decades after independence, the feeder roads that were traditionally maintained by the
private sector (along the production/trade routes) or large para-statals were abandoned to a
slow decline.
When Gcaminess output collapsed from 550,000 tons in 1988 to 40,000 tons in 1994, cargo
transport decreased by 90 percent, in turn affecting ONATRA and SNCC (see Table 9).
Without the capacity to adjust tariffs in spite of high inflation, high oil prices, limited cargo to
move goods, or foreign currency to finance capital upgrade, the operations of ONATRA and
SNCC came to a virtual halt, with catastrophic implications for the economy and for trade
(see Table 9).
Table 9 DRC mining and transport sector, key statistics (1988-1994)
1988 1989 1990 1991 1992 1993 1994
Gcamines production (thousand metric tons)
Copper 468,4 442,8 355,7 236,1 147,3 48,3 33,6
Cobalt 10 9,3 10 8,6 6,4 2,2 3,6
Zinc 61,1 54 38,2 28,3 18,8 4,2 2,5
ONATRA 900 857 754 412 193 124 95
SSCC 1.701 1.659 1.340 815 448 169 193
Source: DRC, Statistical Annex, IMF (several years)

36
The link has been losed since 1975 following the war in Angola.
38
39 | P a g e

The downfall of the ONATRA and SNCC resulted in different outcomes. Because entry in
the river transportation business was easy, private actors entered the market to provide the
services. Private boat operators and ports appeared on the rivers. Railway, on the other hand
was a public good that could not easily be privately provided. As a result, the regions that
suffered the most were those dependent on railway transportation, like Katanga, Maniema
and Orientale. Serviced by private boats, provinces accessible by river like Equateur,
Orientale, Bandundu and Kasa Occidental saw an abrupt drop in cargo transit, but less
disruption in terms of connectivity. Regions that were connected to neighboring countries
like South Katanga, North and East Orientale and the two Kivus could access markets only
by using the infrastructure of neighboring countries or by flying their goods to Kinshasa.
The years of war and instability reinforced the failure of the transport network by destroying
the infrastructure, blocking key pathways and limiting navigation on the Congo River.
During the war only Bandundu and Kasa Occidental were really accessible by river from
Kinshasa. Katanga, the Kasa Oriental, Maniema and Orientale could no longer communicate
via rail lines. River navigation to Equateur and Orientale on the Congo River was interrupted
by the conflict. The two Kivus and Orientale, which have been using Uganda, Rwanda and
Kenya to ship their goods to the port of Mombassa port, saw the internal roads in the DRC
blocked by militia groups.
Figure 19 Diagrammatic Map of Transport in the DRC

After the war, the system was left in a state of total disrepair, as most roads were impassable,
and ONATRA and SNCC were bankrupt. Figure 19 presents the diagrammatic map of the
state of the transport system in the DRC after the war. In practice, only waterways served the
country by connecting Kinshasa to Bandundu, Kasa Occidental, Equateur and Orientale.
Very few national roads have remained functional; Kinshasa was connected by paved roads
39
40 | P a g e

to a single provincial capital (Matadi in Bas-Congo.) Only gravel and dirt roads remained,
though impassable during the rainy season. As seen on the map, all the eastern part of the
country, including Orientale, the two Kivus, Maniema, Kasa Oriental and Katanga were
disconnected from the rest of the country, as from one another and within the province.
Is infrastructure the binding a constraint?
According to the Doing Business Report, the cost of importing a container in the DRC (US$
2,483) is lower than in the Republic of Congo (US$ 2,959), Zambia (US$ 3,335) or Rwanda
(US$ 5,070.) Exporting a container is slightly more expensive, but still cheaper than in
Zambia and Rwanda. In terms of importing costs, the DRC is close to the SSA averages,
while in terms of exporting costs it is 50 percent more expensive. It also takes ten more days
(46) to export a container from DRC compared with SSA, and 25 more days (66) to import
goods.
These figures are better than expected, and, firms surveyed in the ICA do not complain about
transportation. Transportation is ranked 7th (out of twelve) in the list of obstacles for private
investment in the DRC and less than 4% of the surveyed companies consider it a major
barrier.
This data is to be used with caution, however. The cost of shipping a container out of
Kinshasa or Matadi does not take into account the costs of internal transportation on
competitiveness for the firms, which is an important factor in a country as large as the DRC.
In addition, the ICA responses may reflect a sample bias as the only firms that survived the
war (especially those in Kinshasa where 80 percent of the sample is located) were firms that
were not transport-intensive, were vertically integrated with their own transportation or which
used mainly river transportation.
An analysis of the ICA data by cities further shows that firms in Kinshasa or Matadi do not
complain about transportation while those in Lubumbashi place it as the second most
constraint factor.
37
In addition, the ICA shows that small firms complain about transportation,
while large ones do not (being vertically integrated).
The field observations by the growth diagnostics team to the DRC support this heterogeneity,
in terms of the impact of the lack of infrastructure on various sectors and regions. Transport
infrastructure is the most limiting factor for the development of the non-mining areas in
Katanga and in North Orientale. In contrast, the (low) infrastructure stock in Bandundu and
in the two Kivus appears to be under-utilized, suggesting another sort of active constraints to
the private sector there. In Bandundu-Ville, firms are not well positioned to immediately take
advantage of the available energy supply or the good connectivity networks with Kinshasa.
In Uvira (South Kivu), the lake port of Kalungu runs at 30 percent of its peak capacity to
move cargo freight (see the provincial growth diagnostics studies for further discussion.)
This evidence indicates that transport infrastructure is not an active constraint for firms
currently operating in the country. However, it seems to be a major limitation for DRCs
growth and for its capacity to attract private investment that only half the country (the half
covered by river transportation) is connected within. Moreover, the fact that vast areas within
each province are unreachable from the provincial capitals and from Kinshasa poses a severe
limitation for poverty reduction and for the opportunity of an expansion in the rural economy
(see the provincial reports for evidence and discussion). Finally, the huge untapped resources

37
We dont claim this data to be representative as only 13 firms were surveyed in Lubumbashi.
40
41 | P a g e

the country has in mining, timber or agriculture can only be exploited at a significant scale if
made accessible, something only transport infrastructure can do.
Electricity
Much as the transport infrastructure, the electricity infrastructure is in a state of disrepair. The
State monopoly for electricity generation and transmission, SNEL suffered the same woes
that brought large Congolese para-statals to their demise: mismanagement, under-investment,
lack of maintenance, lack of hard currency, large debt arrears with Government agencies, etc.
Following decades of low levels of installed capacity due to obsolescence of capital and lack
of maintenance has led to low efficiency in transmission due to a decrepit grid, and frequent
blackouts. Energy has become a crippling constraint to private investment.
In fact, lack of reliable energy supply is the number one constraint identified by private firms
in the ICA.
38
The number of firms identifying energy as the most limiting constraint is twice
as large as the number of firms citing lack of access to finance, which is ranked second. Even
by looking at the ICA data by sector of activity, size or provinces, electricity remains the top
constraining factor. Similarly, firms in all provinces reported suffering from power outages
in 2005, with losses that are relatively high (10.4 percent) when compared to other countries
(see Table 10). In Kinshasa, 45 percent of firms report electricity as the most binding
constraint, and 36.4 percent of firms in Matadi, even though these cities are serviced directly
from the Inga Dam in Bas-Congo. In Lubumbashi and Kisangani poor electricity supply is an
even larger obstacle, with 61 percent and 69 percent of the companies, respectively, reporting
it as the biggest constraint. The team could observe that electricity is also an active constraint
to investment and production in the Kivus, particularly in North Kivu and in Orientale,
particularly in Kisangani.

Table 10 Percent of firms owing a generator, DRC and comparator countries
Burkina Faso
(2006)
The Gambia*
(2006)
Guinea Bissau
(2006)
Niger
(2005)
Senegal
(2007)
DRC*
(2006)
% % % % % %
Yes 24.0 63.6 68.0 24.8 49.0 41.6
Number of
firms
50 33 50 125 259 149
Losses due to power outage
Average
Loss as % of
Total Sales
6.4 15.6 8.8 6.9 6.9 10.4
Source: Enterprise Surveys*Manufacturing firms
As shown in Figure 20, imports of electric generators in the DRC have grown since 2001, and
almost doubled between 2005 and 2006. The figure testifies of the strong correlation
between economic performance and imports of generators. Further imports of generators
increase even in years when the national utilities company SNEL increased electricity
generation. In 2006, the country reported about US$15 million worth of generators imports,
compared to US$ 2.5 million in 2000.

38
ICA (2006).
41
42 | P a g e

Electricity is an active binding constraint that firms try to overcome by generating on-site
energy.

Figure 20 DRC: Imports of Electric Generators, Electric Generation and GDP, 1996 - 2006

On-site energy generation offers a solution only for sectors with low-intensity electricity use.
It is viable in cities with good connectivity and a permanent supply of fuel, but prohibitive
elsewhere. Services (hotel, restaurants and professional services) and some labor- intensive
manufacturing can generate on-site, whereas industry (mining and timber) and the bulk of the
manufacturing sector (food processing and textiles) do not have such an option. Mining and
forestry, two promising sectors for growth in the country, are highly dependent on large
supply of electricity. The food processing and textiles industries also depend on the
regularity of the energy transmission to operate modern equipment.
While electricity constraints are common throughout the country, they are more important in
some provinces than in others. According to the Kinshasa Province report, energy is the most
limiting factor for current companies and likely also for potential investors. A few large
projects in Katanga Province are connected to Inga II and do not complain about lack of
electricity supply, though the rest of the province, including the industrial sector clustered
around mining, is constrained by poor electricity provision. In Orientale, timber and textile
industries listed energy supply as a major bottleneck. However, in Bandundu energy is
under-utilized. Butembo in North Kivu used to have manufacturing industries in cosmetics
and beverages based on on-site generation, but it is now cheaper to import these goods from
Uganda.
Summary
Based on available data, weaknesses in the energy infrastructure appear to pose active
constraints at the national level and for manufacturing sector. The transport
infrastructure does not appear to be an active constraint for firms currently operating in the
1
1
.
2
1
.
4
1
.
6
1
.
8
2
l
o
g

u
n
i
t
s

(
l
i
n
e
s
)
0
5
1
0
1
5
2
0
1996 1998 2000 2002 2004 2006
Import of Electric Generators GDP constant LCU Electric Generation (KWH)
Source: IMF & COMTRADE
42
43 | P a g e

country, but seems to be a major limitation for growth in DRCs growth and for its capacity
to attract private investment, particularly in agriculture and agro-industry.
4.2.2 Is human capital a binding constraint?
The stock of human capital (by average years of study) in the labor force has been stable at
around 7 years for the last generations, indicating that and the average Congolese has only
completed primary level education (see Figure 21). Most of the educated labor force is
concentrated in Kinshasa and the capital has 2.5 years more of education on average
compared to the rest of the country.

Figure 21 Average years of education

Source: Authors calculations based on 1-2-3 Survey (2004-2005)
*Excluding Kinshasa

Most Congolese attain secondary level (44.8 percent), followed by primary education (31.3
percent) (see Table 11). About one-fifth of the population over 15 years has no education
(20.1 percent.) As mentioned above, the capital has the largest concentration of university
graduates in the country.
Table 11 Education levels (% by attainment, population 15 years and more)
Kinshasa DRC
No instruction 4.9 20.1
Primary 21.1 31.3
Secondary 59.4 44.8
Non-Formal Program 2.2 0.6
University 12.5 3.2
Post-Graduate 37.6 27.8
Total 100 100
Source: 1-2-3 Survey(2004-2005)

One way to see whether human capital is constraining growth is to evaluate whether wage
premiums are particularly high. At a national level, the return of one extra year of education
is 6 percent, which is a low return indicative of a labor market that does not need to offer
higher wages to attract educated workers essentially, as the largest sectors in the economy:
0
2
4
6
8
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5
-
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DRC*
Kinshasa
43
44 | P a g e

agriculture, manufacturing and trade, need low levels of human capital. In other words, it is
indicative that human capital is not a binding constraint.
Returns to an additional year of schooling (calculated using the Mincer equation) vary greatly
between provinces (see Figure 22). Further, uneven returns to education are indicative of the
different development paths of Congos provinces and the structure of their local labor
markets. Consequently, labor policies should aim at more efficiency gains by favoring
internal labor mobility. These results are discussed in greater detail in the provincial reports.

Figure 22 Returns to education (Mincer) by Province


Another test for shortages of human capital is to look at the relative wages for skilled and
unskilled workers (see Figure 23). If skilled workers receive high premiums, combined with
a low supply of skilled workers, then the study can conclude that it is necessary to increase
the supply of skilled workers. This hypothesis, however, is not verified.

Kinshasa has a substantially higher supply of skilled and semi-skilled workers compared to
the rest of the country (83% vs. 51%), earning higher salaries. This should be expected,
given the citys large tertiary sector. The relative prices between qualified and unqualified
workers show that Kinshasa has more qualified workers but the wage premium is lower
compared to the national average, which is not a sign that the labor market in Kinshasa is
constrained by qualified workers.

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44
45 | P a g e

Figure 23 Skill premium between skilled and non-skilled workers39

Note: Skilled and semi-skilled workers include those with complete primary education

Recent reports from the private sector confirm that human capital is not in scarce supply in
the country. Firms surveyed in the ICA ranked human capital third to last (9 out of 12) in the
list of barriers to private investment. Considering that the survey was done in the largest
cities, where the demand for skilled labor is higher, it is a reasonable assumption to discard
lack of human capital as a binding constraint for growth.

Table 12 DRC: Educational Level of Managers by province (% with education level)
Kinshasa Matadi Lubumbashi Kisangani Total
No education 0.3 - - 9.1 0.6
Some Primary 2.0 - 7.7 - 2.1
Some Secondary 25.5 33.3 23.1 36.4 26.2
Vocational Training 13.1 - 15.4 9.1 12.3
Graduate degree 21.5 38.9 46.1 27.3 23.5
Post-Graduate 37.6 27.8 7.7 18.2 35.3
Total 100 100 100 100 100
Source: ICA (2006)
Moreover, according to the 1-2-3 survey conducted in 2004-2005, 30 percent of the labor
force was unemployed the previous year (has not worked during the past year.) Given the
level of unoccupied workers and since most workers are located in the informal sector (where
wages can be pushed down), the study can conclude that labor costs (or labor availability) are
not the binding factors.

39
Due to data availability and problems in definition, skilled workers are defined as those having completed at
least primary education.
$ 13,335
$ 24,471
$ 7,645
$ 16,553
51.1%
83%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0
5000
10000
15000
20000
25000
30000
DRC* Kinshasa
Skilled and semi-skilled
Un-skilled
45
46 | P a g e

Summary

The evidence confirms that the availability of educated workers does not represent a
constraint to growth. The supply of skilled and semi-skilled workers, in particular in
Kinshasa where demand is higher, does not constrain private investment. The study then
concludes that an increase in the education levels will have minimal impact on the growth of
GDP and private investment.
4.3 Is it low appropriability?


Do entrepreneurs fear appropriating the fruits of their capital, and consequently, refrain from
investing in anticipation of such problems? Low appropriability constraints may stem from
extortion in the form of taxes or corruption, as well as from a breakdown of the rule of law.
They may also stem from negative externalities in information and coordination of markets.

4.3.1 Is it Government failures?

The most disruptive force to the economic activity in the history of the DRC may be the
countrys own government, given the track record of nationalizations, expropriations,
annulment of decrees, arbitrary decisions and corrupt and kleptocratic attitudes that can be
summed up as a textbook case for government failures.

Even if much has improved since 2001, the legacy of Government failures remains, and for
most of private operators, the states institutions are largely predatory
40
.

40
46
47 | P a g e

Is it micro risks?

Rule of law

Property rights and contract enforceability pose a severe limitation to investment, particularly
for new investors looking to enter the market. The costs of starting a business in the DRC
amount to 435 percent of the GNI per capita. This is the highest in the world and four times
the average in SSA. Opening a business takes up on average 155 days (again four times the
SSA average), while closing a business up to 5 years (2 more years than the SSA average.)
Routine business decisions, such as the capital expansion for a commercial bank require a
Presidential decree that can take up to a year to obtain. The DRC ranks lower than SSA
averages, in terms of licensees and regulations. The result to this regulations overload is
systemic corruption, informality and the proliferation of facilitators and intermediaries
41
.

Corruption

Mobutus Zare was corrupt to a level that the Zares malaise label came to describe the
endemic system. The demise of the Mobutu regime did not put an end to corruption, even if
the World Bank Governance Indicators indicate a slight improvement in the efforts to control
corruption since the Mobutu years. Corruption, particularly the payment of bribes has been
internalized in the state apparatus via a complicated and duplicative web of national and
provincial fiscal entities (or regies such as DGM, DGRAD, DGI etc.), customs agencies
(e.g. OCC, OFIDA, BIVAC etc), police, (DGM, and the other competing border and
immigration control agencies within and between provinces etc.) The asking of bribes is
done in total impunity and with every movement of people and goods across the country
42
.
Private sector actors report that, everything is negotiable, no matter the taxes, fees and
tariffs.
43
.

Corruption is thus pervasive, although a small number of firms (20 percent) formally report it
as a constraint to business compared with the SSA average (40 percent.) Further, the fact that
corruption ranks only second to last in the list of barriers for doing business in the DRC may
suggest that corrupt practices have become so deeply ingrained that they are taken as a fact of
life and a way to get things done; 84 percent of firms admit to making payments to
government officials (twice the level in SSA and the 6th worst ranking in the world.)
Similarly, 80 percent of the firms admit using gifts to secure public contracts (again twice
the level in SSA) and the 5th worst ranking in the world. Overall, 64 percent of firms report
bribing tax officials with gifts, three times more than the SSA average
44
.

Corruption has become ingrained in business as usual and is perpetuated as part of a
perverse market solution to an economy with distortive taxation and regulations. Corruption
is also symptomatic of the poverty and the low wages in the public sector.

41
World Bank Doing Business Report.
42
Personal experience and interviews by the authors. DRC. July-October 2009.
43
44
World Bank Enterprise Survey.
47
48 | P a g e

Taxation

The DRC, a country that is in desperate need for revenues, is under strong pressure to
increase taxes and/or tax rates. In many cases, these policies can be counter-productive and
introduce perverse incentives by of discouraging private entrepreneurs to operate in the
formal sector. Indeed, almost 50 percent of the population in Kinshasa operates in informal
agriculture, trading and manufacturing.

Companies complain about tax rates and about tax administration, with 52 percent of the
firms surveyed citing a barrier (compared to 41 percent in SSA.) Tax rates rank as the
number four constraint after energy, access to finance and competition from the informal
sector
45
. Firms also complain about tax administration (40 percent of firms compared to 28
percent in SSA)
46
. Looking at the ICA data by sector, firms in commerce cite tax
administration as the second most constraining factor, suggesting that commerce activities
across borders and provinces are highly targeted by tax collectors (gatekeepers), through
legal and illegal taxation (informal tolls.)

Table 13 DRC and comparator countries: Paying Taxes
Paying Taxes

Payments
(number)
Time
(hours)
Profit tax
(%)
Labor tax &
contributions
(%)
Other
taxes (%)
Total tax rate
(% profit)
Middle East & North Africa 22.8 216.3 12.9 16.3 4.1 33.3
Sub-Saharan Africa 37.8 311.7 21.5 13.2 32 66.7
Angola 31 272 24.6 9 19.5 53.2
Burundi 32 140 17.7 7.8 253.3 278.7
Central African Republic 54 504 176.8 8.1 18.9 203.8
Congo, Dem. Rep. 32 308 0 7.9
Congo, Rep. 61 606 0 32.9 32.6 65.5
Cote d'Ivoire 66 270 9.7 20.1 15.7 45.4
Malawi 19 292 29.6 1.1 0.7 31.4
Mozambique 37 230 27.7 4.5 2.1 34.3
Sierra Leone 28 399 0 11.3 222.2 233.5
Uganda 32 222 22 11.3 1.3 34.5
Zambia 37 132 1.7 10.4 4 16.1
Zimbabwe 52 256 0 4.7 59 63.7
Source: World Bank Doing Business Report
The total effective tax rate in the DRC is high, even when compared to SSA countries (see
Table 13). ON the other hand, the returns on investments are also high. While there does not
appear to be consistent evidence that taxes and labor regulations are binding for growth in
todays business environment, the lack of clarity and certainty in the fiscal and regulatory
framework in turn contribute to encourage evasion and corrupt practices. As reported by the
firms surveyed, a gift to the representative of the tax authority is not uncommon; and 84%

45
ICA Survey.
46
World Bank Enterprise Survey.
48
49 | P a g e

of firms indicate they will be ready to bribe. More than one firm interviewed admitted to
altering the books and creating fictitious losses to avoid higher taxes
47
.
With this data, we may discard taxes as a suspect for the most binding constraint to private
investment, although they are high and their collection encourages harassment and extortion
by the representatives of the State, and attempts at evasion by private actors at the receiving
end.
Insecurity
It is remarkable that political instability would be listed as only the 5
th
most constraining
challenges (behind taxes), with a mere 5 percent of the firms surveyed in the ICA (especially
medium and large firms) reporting it as a barrier. Surprisingly, respondents in Kisangani,
Lubumbashi and Matadi did not consider insecurity to be a pertinent concern; and only firms
located in Kinshasa listed it as a constraint. Crime is cited as the 7
th
top constraint by an
insignificant number of companies, and only 34 percent of the firms surveyed report paying
for securityor half the percentage of firms paying for security in SSA.
This evidence suggests that security is not the most critical challenge for the firms surveyed
in 2005. However, such perceptions may not match the reality in cities in North Kivu, South
Kivu and Orientale.
Summary
At the national level, security is not perceived as the most binding constraint for businesses.
The economic impact from the insecurity in the eastern provinces has remained localized and
has not affected investment in the other provinces.
Even though the DRC is ranked as a destination that is not business-friendly, corruption does
not appear to be the most binding constraint. The absence of the rule of lawand its
implications on contract enforceability are more severely binding to existing and potential
new investors.
Are macro risks binding?
The DRC has long had a history of macro-economic volatility and instability that became
chronic before and during the wars, shaking the confidence of domestic investors. The DRC
had its currency pegged to the SDRs until 1983, when a sharp devaluation led to a dirty
floating of the currency and a black market for forex. The official exchange rate reached
unrealistic levels with a dollar to over 100 millions of Zare in 1993. Inflation was above 50
percent in the 1980s, reaching 256 percent in 1990, and then 10,000 percent in 1994, before
climbing down to 370 percent in 1995 and 657 percent in 1996. In response to the rapid
inflation and the wide fluctuations in the value of the currency, the country moved to
dollarization and the generalization of barter trade, even in urban areas. Since the end of the
military conflict, inflation has returned to 18 percent in 2005, 13 percent in 2006, and 17
percent in 2007. Despite the leveling off of inflation, the economy continues to be largely
dollarized.
In 2007, the new elected Government, under close guidance from the IMF, tightened liquidity
conditions, increased revenue collection and limited spending. The macro-economic

47
49
50 | P a g e

framework remains fragile nonetheless, particularly after the global financial crisis that
resulted in contracting investment flows and depressing the prices of the exports basket. The
war effort in the eastern Congo and the proposed creation of several new provinces (from 11
to 26) has pushed the Governments propensity for expansionary budgets. Recently, stricter
fiscal discipline and transparency measures were restored, as part of the dialogue on the IMF
PRGF, and have positioned the DRC closer to reaching the enhanced HIPC (Heavily
Indebted Poor Countries) completion point, and achieving greater debt sustainability and
fiscal stability. This milestone of macro-stability will enable the GoDRC to claim a
certificate of good conduct, and provide comfort for international investors.
International capital markets will be closely monitoring the countrys macro-economic
performance. The next Presidential election scheduled for 2011 will be a test of the political
commitment of the government to stay the course of prudent fiscal and monetary
management
48
. Fiscal space is indeed reduced today as a result of the ongoing war efforts in
the East and with inflation above 40% due to the depreciation of the Congolese franc.
In light of these recent events, the study can discard macro-risks as a constraint for private
investment in the DRC. Three pieces of evidence confirm our conclusion. First, even in the
midst of the inflationary spiral and currency devaluation in 2005/2006, only 4 percent of the
firms surveyed by the ICA cited macro-economic risks as a concern. Secondly, investment
inflows are at record levels, especially in mining and timber. Finally, the decrease in mineral
prices since the second half of 2008 has not resulted in the collapse of commodity prices
cseen in 1975 and 1986; suggesting that the market may be more confident in the capacity of
the GoDRC and the private sector to cope with new crises better than Gcamines has done.
4.3.2 Market Failures
Is it self-discovery?
According to HRV (2005), the development process in less advanced countries is largely
about structural change: it can be characterized as one in which an economy finds outself
discoverswhat it can be good at, out of the many products and processes that already
exist. Self-discovery issues are potentially more important and the payoffs of addressing
them are much larger in the tradable sector, as the tradable sectors productivity can be
scaled up to supply world demand. A province (or a country) would be constrained by self-
discovery if it cannot find its niches; that is, if the country fails to discover its comparative
advantage.
Since the 1970s, the economy of the DRC has long been extravertedor turned towards
the exports of raw minerals, timber and agro-industrial products (see Table 14). Even when
the composition of the exports basket may have changed over the years, reflecting the
collapse of different sectors (such as copper which went from 62 percent of exports in 1970
to almost zero in 2000), at an aggregate level, all exports come from the primary sector and
generate little added value for the economy.

48
During the last elections in 2005, fiscal and monetary policies were lax, as the GoDRC overspent to pay for
the electoral campaign and for security, through the Central Bank financing. The Congolese franc was
depreciated by 15% against the US dollar, inflation climbed to 18.2% and the Central Bank reserves could cover
only three weeks of imports (US$150 million). This deterioration in the macroeconomic situation prevented the
DRC from obtaining full debt relief from the Paris Club and slowed down the growth rate of private foreign
investment to the country.
50
51 | P a g e

The past four decades illustrate the two main features of the economy. First, it is based on
extractive industries. Second, manufacturing and/or industrial goods never represented a
substantial contribution in the exports basket, even during periods of growth and
industrialization.
51
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5
2
The picture provided in Table 14 would suggest that self-discovery is constrained.
Over a period of 30 years, the composition of the DRCs exports basket has remained
constant and based almost exclusively on extractive industries. Extreme
concentration characterizes the extractive sector, i.e. the 3 or 4 top exports represent
as much as 80 percent of the countrys total exports. The authors do not, however,
conclude that self-discovery illustrates the most binding constraint to the economy
today. While it is true that the DRC could and should diversify its export basket away
from the primary sector and reduce its economic dependency over a few natural
resources (diamonds, cobalt, copper) to reduce volatility and exposure to exogenous
shocks in the short to medium-term, growth will be increased and jobs created by re-
starting the wheels of the traditional sectors that once underpinned a competitive
economy.
Growth and export-oriented activities can be re-started immediately by picking up
low hanging fruitsin effect, being better at producing more of the same at more
competitive prices, and scaling-up traditional industries that have been struggling.
Is it coordination failures?
To suggest that the Congos potential remains untapped is an under-statement. While
acknowledging the complex legacy of the countrys history, it appears that the lack of
economic performance might be due in part to the failures in information and
coordination in the market functions, following the collapse of key players in key
sectors in agriculture, industry and transportation.
In the past, producers and economic actors played an active coordination role in the
economy. History, the economic crises and the wars have reduced them to a passive
role. These economic interest groups formerly contributed to: the construction and
maintenance of roads (e.g. coffee producers in Orientale and North Kivu building
roads in the agriculture-rich mountains); the coordination of financing mechanisms
(e.g. cotton farmers through Codenord); and the economies of scale gained by
managing common/public goods (e.g. electricity through Codenord the cooperatives
in coffee and fish farming in North Kivu.) By nature, these common/public goods are
non-exclusive. More importantly, their absence results in missing inputs and market
failures. Coordinating the production and delivery of such goods might not have a
tangible impact nation-wide, but it will help re-start economic activity in rural and
remote areas that once contributed to specific industries (cotton, coffee-farming,
cattle-raising etc.) and have since collapsed.
5. Conclusion
Scarcity of data and the inter-related nature of challenges typical of post-conflict
settings make it difficult to first isolate and then rank the most binding constraints for
the DRC economy. In applying the HRV framework, some decision nodes were
discarded, in particular geography, human capital, macro-economic risks and market
failures.
The study concludes that: i) government failures; ii) lack of finance; and iii) lack
of infrastructure (energy and transport) appear to be actively binding
constraints. The study argues that the highest returns in terms of growth would be
gained if these three binding constraints were resolved.
53
54
Government failure that has manifested as the absence of the rule of law, particularly
the uncertainty of legal and regulatory frameworks and low enforceability of
contracts, appear to be most discouraging factors for foreign investors.
Rooted in the same institutional failure, the study identifies access to finance as a
binding constraint, in particular for domestic investors. Lack of access to finance is
particularly damaging to the agriculture sector, as small farmers lack alternate sources
of funding and small urban enterprises lack the financial literacy and assets to
collateralize. The root causes of existing limitations, however, in the financial sector
in DRC do not appear to lie within the banking system. They appear, instead, to be a
symptom of government failures, such as the lack of enforceability of collateral
contracts and widely prevalent predatory attitudes that push private firms and
investors out of the formal sector.
The energy-related problems are mainly concentrated in the generation (availability)
and distribution (quality and coverage) of electricity, constraining growth in sectors
that are energy-intensive. Industry diversification away from the primary sector is
thus prevented, limiting growth in key economic growth poles like Kinshasa,
Lubumbashi and Kisangani. The lack of electricity also decreases returns to
investment in the infrastructure and manufacturing sectors.
Weaknesses in the transport infrastructure are hurting the demand and the supply of
goods, in particular for those areas where river transportation is not available.

54
55
Policy Issues
The DRC is an extremely heterogeneous country. Therefore, any growth-oriented poverty
reduction efforts must be based in and stem from local realities, and designed with local
authorities.
When considering the three dimensions constraining growth together, i.e.: i) government
failures; ii) infrastructure; and iii) finance, it is evident that the DRC could perform better
if the right institutions were in place.
Policy interventions must therefore concentrate on a small number of key institutions that
could act as a lever in removing the most visible symptoms of government failures.
By focusing on a short list of institutions, the policy interventions should aim at
creating an institutional bubble around the few key lever agencies selected. The idea
would be to create a short list of entities, ring-fence their operations so they may
become transformative functioning institutions, in the realms of the economic sectors
determined to be most constrained; and bet that this institutional transformation could
serve as a lever for change. The transformative impact of the proposed bubble would
be to establish a new institutional model that would increase the cost of corruption, on
the one hand, and exemplify doing business differently.
Revenue collection agenciesincluding customsmight provide such levers and
immediate entry points, to boost transparency and efficiency of public management and
reduce evasive and corrupt practices. Similarly, the study would suggest creating
efficient investment promotion boards at the national and provincial levels, to develop
confidence-building measures and innovative coordination models of public-private
partnerships.
It may be necessary, in the very initial phase to draw upon or borrow limited external
and credible capacity, to steer the process of institutional change. A roadmap with a set
of benchmarks would help build confidence in the process.

55
56
References
1996-2005: Democratic Republic of the Congo: Selected Issues and Statistical
Appendix, IMF (2001 and 2007).
Banque Centrale du Congo, 2006. Rapport Annuel 2006.
Banque Mondiale. 2005. Projet dappui la dcentralisation pour le renforcement
des capacits.
Banque Mondiale. 2006. Document de Stratgie de la Croissance et de la rduction
de la Pauvret de la Province du Katanga.
Christine Plaza. tude socioconomique dans les zones dintervention dAction
Contre la Faim, Territoires de Fizi et Uvira, Sud Kivu, Rpublique Dmocratique du
Congo. Action contre la Faim.
Congo NGOs. 2008. A Plea from Local Organizations and Civil Society in North
Kivu, Eastern Democratic Republic of Congo, to the United Nations Security Council
and other international leaders. Goma, November 18, 2008.
Cuvelier, J., 2009, The Impact of the Global Financial Crisis on Mining in Katanga.
International Peace Information Services.
Economist Intelligence Unit. Country Reports.
Economist Intelligence Unit. Country Data.
Economist Intelligence Unit. Country Profiles.
FAO. 2008. Executive Brief: Democratic Republic of Congo Comprehensive Food
Security and Vulnerability Analysis (CFSVA) / 2007- 2008
Federal Research Division, Library of the Congress. 1994. A country study: Zaire.
Library of the Congress Country Studies.
Garrett, N., & Harrison, M. 2009. Trading Conflict for Development: Utilizing the
Trade in Minerals from Eastern DR Congo for Development.
Global Witness, 2005. Under-Mining Peace: The Explosive Trade in Cassiterite in
Eastern DRC.
Global Witness, 2007. Le secteur minier congolais: la Croise des Chemins. Un
briefing de Global Witness.
Global Witness, 2008. Control of Mines by Warring Parties Threatens Peace Efforts
in Eastern Congo.
Office du tourisme du Congo belge et du Ruanda-Urundi. 1951.
Guide du voyageur au Congo belge et Ruanda-Urundi. 1951/1956. Library of
Congress. LC Control No.: 52040884. At:<http://lccn.loc.gov/52040884>
Hausmann, R., & Klinger, W., 2008. Growth Diagnostics: A Mindbook.
Hausmann, R., Rodrik, D., & Velasco, A., 2004. Growth Diagnostics. John F.
Kennedy School of Government, Harvard University .
Huart, A. and Tombu, C., 2009. Congo Magnifique. Weyrich Editors.
IMF, 2006. Poverty reduction Strategy Paper.
56
57
International Monetary Fund. (2001-2007). Article IV.
International Alert. 2007. Peacebuilding in Eastern DRC: Improving EU Support for
Economic Recovery.
NEPAD. Business Foundation, 2007. The Challenge of Katanga toward the Need for
Electrical Energy.
See Ligeois, M, 2008. La Dcentralisation en RD Congo: Enjeux et Dfis. Groupe
de Recherche et dInformation sur la Paix et la Scurit.
Sen, A. K., 1985, Commodities and Capabilities. North Holland, Amsterdam
(republished, Oxford, 1999).

57

Bandundu Province,
DRC
A scoping of binding constraints to growth

Abstract

2009
Alfie Ulloa, Felipe Kast, Nicole Kekeh

12/28/2009
58
2 | P a g e

Table of Contents
Table of Contents .......................................................................................................................................... 2
Abbreviations and acronyms ......................................................................................................................... 4
Executive Summary ...................................................................................................................................... 5
1. Introduction ....................................................................................................................................... 8
1.2 Describing current GDP composition ........................................................................................... 9
1.3 Describing growth collapse ........................................................................................................ 11
1.3.1 The collapse of a mono-industry: Palm oil ......................................................................... 12
1.3.2 A cycle of low productivity and investment ....................................................................... 13
2. Poverty Profile ................................................................................................................................ 15
2.1 Poverty Incidence ........................................................................................................................ 15
2.2 Poverty and education ................................................................................................................. 18
2.3 Poverty and health ....................................................................................................................... 18
2.4 Summary ..................................................................................................................................... 19
3. Applying the Growth Diagnostics Framework ................................................................................... 20
3.1 Is access to finance a binding constraint? ................................................................................... 20
3.2 Is it lack of social returns to economic activity? ......................................................................... 23
3.2.1 Is it geography? ................................................................................................................... 23
3.2.2 Is infrastructure a current binding constraint to growth? .................................................... 24
3.2.3 Is human capital a binding constraint to growth? ............................................................... 27
3.3 Is it low appropriability of investments returns? .................................................................... 30
3.3.1 Government Failures ........................................................................................................... 31
3.3.2 Market Failures ................................................................................................................... 32
4. Conclusion .......................................................................................................................................... 33
Policy Issues: .......................................................................................................................................... 34
References ................................................................................................................................................... 35

59
3 | P a g e

Figure 1 Bandundu: Evolution of GDP Composition (2006-2008) ............................................................ 11
Figure 2 DRC: Palm Oil production over several years (thousand tons) .................................................... 12
Figure 3 DRC: Poverty ............................................................................................................................... 16
Figure 4 Sources of income in agriculture .................................................................................................. 16
Figure 5 Bandundu: Poverty levels by sub-region ...................................................................................... 17
Figure 6 Human Poverty Index ................................................................................................................... 17
Figure 7 Enrollment rate (net) ..................................................................................................................... 18
Figure 8 Ratio of stunted children............................................................................................................... 19
Figure 9 Vaccinations: Bandundu vs. DRC ................................................................................................ 19
Figure 10 DRC: Diagrammatic Map of Transport ...................................................................................... 26
Figure 11 Bandundu vs. DRC national average: Schooling ...................................................................... 28
Figure 12 Bandundu vs. DRC: Skilled workers .......................................................................................... 28
Figure 13 Bandundu vs. DRC: Stock of human capital by gender ............................................................. 29
Figure 14 Bandundu vs. DRC: Occupational profile .................................................................................. 30

Table 1 Bandundu: At a glance ..................................................................................................................... 8
Table 2 Bandundu: GDP Composition 2006-2008 (in constant 2006 prices) ............................................. 10
Table 3 DRC Agriculture production (pre-independence2005) .............................................................. 13
Table 4 Bandundu: Selected indicators for agricultural exploitations ........................................................ 14
Table 5 DRC: Private Investment Projects (2003-2008) ............................................................................ 20
Table 6 Bandundu: Short-term vs. long-term deposits, 2007 (000 CDF) ................................................... 21
Table 7 DRC: Access to credit for working capital .................................................................................... 21
Table 8 Bandundu: Funding of non-agricultural family enterprises ........................................................... 22
Table 9 Credit to the Private Sector by Activity (share over total) ............................................................. 23
Table 10 Bandundu: Households with access to infrastructure at a reasonable distance............................ 24
Table 11 Bandundu: electricity outline ....................................................................................................... 27

60
4 | P a g e

Abbreviations and acronyms
CDF Congolese Franc
PMURR Programme Multi-sectoriel d'Urgence pour la Relance et la Reconstruction
INED Institut national d'tudes dmographiques
JVL Jules Van Lancker Company
SEBO/ORGAMAN Socit des Elevages du Bandundu Occidental/ORGAMAN
EDS Demographic and Health Survey
MICS-2 Multiple Indicators Cluster Survey
SNSA Service National des statistiques agricoles

61
5 | P a g e

Achnowledgements

1
conducted over a hundred interviews with key actors representing a
wide cross-section of sectors, including private and public sector representatives, civil society, bilateral
and multilateral donors and members of the diplomatic community. The team discussed with
representatives from the main government agencies, including the Central Bank, the Prime Ministers
Office and several sector Ministries. At the provincial level, the team met with the Governors of the
Provinces of Katanga, Kinshasa and North Kivu, several Ministers and their top aides. On the private
sector side, the authors met with Congolese entrepreneurs and businessmen. They spoke with as many
Congolese actors as they could meet in the formal and informal sectors. They interviewed executives of
the largest industrial groups and private firms in sectors ranging from finance, mining, agriculture,
services, timber, cattle raising, construction infrastructure, transport (air, road and rail), ship-building
yards. The authors would like to express a deep debt of gratitude for the time, the energy and the passion
that all their interlocutors invested in their research.
The authors would like to express their deepest thanks and gratitude to the Swedish International
Development Cooperation Agency (SIDA) and to the World Bank Group for their financial, technical and
logistical support that made it possible to undertake this challenging study. Johannes Herderschee and
Markus Scheuermaier shared their expertise and provided assistance and guidance to the team before,
during and following their field visits to the DRC. Janine Mans and Erinn Wattie provided valuable
editorial support. The authors wish to thank the reviewers. The staff and management of the World Bank
Group representation in Kinshasa deserve the teams sincere thanks for their invaluable assistance at any
hour of the day when the team was traveling across the country, and for generously sharing their
knowledge of the history and economy of the Congo. Francisca de Iruarrizaga, Hayoung Kim and
Rodrigo Salvado offered superb research assistance. The views contained in this report are those of the
authors. The authors would like to note that any errors, omissions, views and opinions contained herein
are solely those of the authors.

1
Alfie Ulloa is a Doctoral Fellow at the Center for International Development, Harvard University. Felipe Kast is a
researcher at the MIT Poverty Action Lab and a Professor at the Economics Department of the Catholic University
of Chile. Nicole Kekeh, on leave from the World Bank, is an expert on fragility and post-conflict environments.
62
6 | P a g e

Executive Summary
Connected to Kinshasa by the Congo River and an existing albeit decaying road network,
Bandundu has yet to take advantage of a number of important opportunities for development and
regain its role as a national producer and exporter of agricultural and agro-industrial products.
Economic growth should be fueled by the provinces strategic proximity to markets in Kinshasa and Bas-
Congo as well the untapped potential of trade with neighboring Angola. At the moment, however, the
province is unable to provide income to most of its, predominately rural, population. This paradox
between the provinces relatively rich natural endowments and the stagnation of the agricultural sector is
illustrated by the provinces high poverty ratios (89.1 percent for the province vs. 71.3 percent nationally)
that place it as the second poorest in the DRC.
The poverty diagnostic concludes that poverty will not be reduced through social policies aimed at
improving access to education and health care. Rather, poverty will be reduced only when
economic activity is re-established in the rural sector. In other words, tackling poverty in Bandundu
needs more economic than social interventions.
The growth diagnostic argues that, in Bandundu, economic collapse and stagnation is driven by
three dynamic and inter-twined forces: (i) dis-investment in the industrial agriculture sector; (ii)
pull of urbanization; and (iii) lack of access to finance.
The first dynamic trend is the implosion of investment in the industrial agriculture sector due to
Zarinisation, which has proved to be devastating to the palm oil sector. While other provinces seem
to have recovered somewhat from the initial shock of Zarinisation, foreign capital has yet to return to
Bandundu. In Bas-Congo investors have maintained their engagement with Compagnie Sucrire and the
cement-making companies in Matadi. In Katanga the large mining groups have re-engaged and continue
to invest. In North Kivu agri-business industries have remained operational despite unrest. In Kinshasa
industrial boat-building firms (chantiers navals) continue to function. In these provinces, foreign
investors (Belgian, Portuguese, Greek etc.) fought the turmoil of the Zarinisation and the waves of
nationalizations and radicalization, in some cases opting to return or to cede their productive assets to
third parties or to Congolese interests.
Secondly, the pull of urbanization has left Bandundu without the critical entrepreneurial class,
needed to take risks, innovate, and create growth. Much of the segment of the population with capital
and education left the province in pursuit of white-collar/civil service opportunities in Kinshasa, or
were drawn to nearby diamond producing areas. For the moment it seems that this internal diaspora has
been unable or unwilling, in spite of their position of privilege, to re-invest in the productive sectors of the
economy. This absence of an entrepreneur force stands in contrast to North Kivu or Bas-Congo where
the construction sector and the agro-business activities are driven and managed by a local middle-class.
Thirdly, the shortage of sufficient and reliable access to finance has left much of the population
dependent on subsistence agriculture to make ends meet. The majority of the population of the
province has access to land, relatively good access to markets, and the skills needed in agriculture, but
lack access to finance to continue to increase production to the level of industrial agriculture; this segment
of the population has moved to low-productivity subsistence agriculture and cash crops.
The study concludes that poor access to finance represents the most binding constraint for growth
in the province. There is a virtual absence of any form of credit to productive activities, particularly in
the agriculture and agro-industrial sector. While this problem is common to the entire country, it has
particularly affected Bandundu. Only micro-credit (NGOs) finance is available in the province, which is
insufficient to provide for the big push in investment needed to revive the agriculture sector. Savings
ratios in Bandundu are extremely low, resulting in the lack of alternative sources of finance for farmers.
63
7 | P a g e

Moreover, the lack of access to finance for firms with both a profitable business plan and the capacity to
provide collateral, indicates that it is the supply of finance that is constraining Bandundus economy. The
demand for credit exists, but it is not satisfied. Lack of credit to agriculture also affects other provinces in
the DRC, as illustrated by the collapse of credit finance to the sector since 1994; in the context of
Bandundu, however, bad finance has had a larger impact on the demise of the only competitive sector, i.e.
agriculture.
Other constraints examined through the course of the analysis, such as infrastructure and humans
constraints, but the study concluded that these areas were either: (i) not binding constraints; or (ii)
constraints experienced in these areas were actually symptomatic of other problems.
As observed in the rest of the DRC, the decentralization process in Bandundu is progressing too slowly to
allow the fledgling provincial governments to administer effectively and take the necessary steps to attract
private investment. In this context, continued donor support to the fiscal decentralization process remains
key
2
.

2
Banque Mondiale. 2005. Projet dappui la dcentralisation pour le renforcement des capacits du Bandundu,
Katanga and Sud Kivu
64
8 | P a g e

Introduction
Table 1 Bandundu: At a glance
Bandundu DRC
Population, total (millions) 9.9 62.4
Population growth (annual %) 8.9 2.9
Surface area (sq. km) (thousands) 295 2,344.9
Life expectancy at birth, total (years) n.a 46.4
Mortality rate, infant (per 1,000 live births) 103 107.7
Literacy rate, youth female (% of females ages 15-24) 51.4 58.9
Literacy rate, youth male (% of males ages 15-24) 81.7 85.8
HDI (2006) 0.35 0.60
Poverty (%) 89.1 71.3
Urban Poverty (%) 71.9 61.5
Rural Poverty (%) 91.7 75.7
Source: World Development Indicators, INED 2002, UNDP, EDS RDC 2007, 1-2-3 Survey
3
and Authors
own calculations.
*1995-2003
With an area of 295.658 km (12.6 percent of the national territory) or about one-half the size of
France Bandundu is the 4
th
largest province in the DRC in terms of size. From 5 million inhabitants in
1995, the current population is estimated at 9.9 million, with a density of 30 inhabitants per km
2
and
about 77.6 percent of rural population (vs. a national average of 60.5 percent). Moreover, 75 percent of
the households depend exclusively on agricultural activities.
4
The main cities are: Bandundu-Ville
5

(261.541 inhabitants, 432 km from Kinshasa by road) and Kikwit (503.736 inhabitants, 520 km from
Kinshasa by road). Bandundu is the political capital, while Kikwit acts as the main economic center.
Population is very unevenly distributed in the province. Kikwit is the more densely populated city with
5.475 inhabitants per km
2
followed by Bandundu-Ville with 1.178 inhabitants per km
2
; other large areas
like the Kwango and Ma-Ndombe Districts have a very low population density. Bandundu presents a
high dependency ratio with almost half its population under 16, much like the rest of the country but with
higher poverty levels and lower educational levels.

The 1-2-3 Households Survey (Enqute 1-2-3 sur les mnages) was conducted in 2004 in Kinshasa and in 2005
in the rest of the country. Poverty measures and poverty lines are based on consumption data. The level of
consumption was computed using monetary consumption of different kinds, auto-consumption, and transfers in kind
and the rent attributed to households who are not tenants in their accommodation. Consumption per equivalent
adults is estimated following FAO guidelines, which seems to be the best option for this context. In order to estimate
the poverty line we first compute the daily food threshold using a normative caloric threshold of 2,300 kcal
respecting food habits. Prices are only adjusted for rural and urban population. No data is available to impute prices
by region. According to consumption patterns provided by the 1-2-3 Survey final poverty line is estimated as the
sum of the food threshold and the non-food threshold.
4
SNSA, Provincial Government of Bandundu.
5
Bandundu-Ville is in the Ma-Ndombe Province, and was formerly known as Banningville or Banningstad.
65

Fi
Source: UNDP (2005)

According to the new 2006 Constit
to twenty-six (including Kinshasa).
in three new provinces: Kwilu, Kw
by a provincial legislative assembly
ten provincial ministers. The Con
intra-provincial revenues, including
remaining revenue will become part

Describing current C
The primary sector is by far the lar
by the tertiary sector (11.5 percent
more a reflection of a sluggish per
agriculture and/or trade activity. I
accumulated loss of 22.8 percent in

6
http://www.insidejustice.com/law/inde
U l l o a , K
igure 1 The Province of Bandundu
tution, the number of provinces in the DRC will inc
The current provincial territory of Bandundu will
wango and Ma-Ndombe. Each of the new province
y and administration made up of a governor, a vice-g
nstitution also provides that each province shall re
g taxes on exports of minerals, timber, and energ
t of the national budget.
6

CDP composition
rgest contributor to Bandundus GDP (85.4 percent
t) and the secondary sector (2.8 percent). Table 2
rformance in industrial production rather than the r
Industrial production plummeted between 2006 a
real terms.
ex.php/intl/2005/12/21/dr_congo_new_constitution
9 | P a g e
a s t & K e k e h

crease from eleven
be further divided
s will be governed
governor, and up to
etain 40 percent of
gy resources. The
in 2008), followed
shows that this is
result of a buoyant
and 2008 with an
66
10 | P a g e

Table 2 Bandundu: GDP Composition 2006-2008 (in constant 2006 prices)

2006 2007 2008

Millions FC
% of
GDP
Millions FC
% of
GDP
06-07 %
change
Millions FC
% of
GDP
07-08 %
change
I. Primary Sector 422.9 83.8 478.1 84.8 13.0 510.4 85.4 6.8
I. Agriculture, fishing and breeding 410.2 81.3 457.5 81.1 11.5 486.4 81.3 6.3
A. Agriculture 317.3 62.9 324.9 57.6 2.4 335.4 56.1 3.2
B. Fishing 27.0 5.4 63.9 11.3 136.9 81.2 13.6 27.1
C. Animal husbandry 66.0 13.1 68.6 12.2 4.0 69.7 11.7 1.6
II. Timber 12.7 2.5 20.6 3.6 62.3 24.0 4.0 16.6
III. Mining 13.6 0.0 62.4 0.0 358.3 60.5 0.0 -3.1
II. Secondary Sector 21.1 4.2 19.0 3.4 -9.9 17.0 2.8 -10.4
I. Industrial Production 20.2 4.0 18.1 3.2 -10.1 15.8 2.6 -12.7
II. Electricity Production 100.9 0.0 113.2 0.0 12.2 126.7 0.0 11.9
III. Water Production 268.0 0.1 372.8 0.1 39.1 439,9 0.1 18.0
IV. Infrastructure 537.1 0.1 369.0 0.1 -31.3 605,9 0.1 64.2
III. Tertiary Sector 60.4 12.0 66.9 11.9 10.8 69.0 11.5 3.1
I. Trade 47.0 9.3 51.8 9.2 10.1 54.8 9.2 5.8
II. No Trade 13.4 2.6 15.1 2.7 13.3 14.2 2.4 -6.0
Total GDP at constant prices 504.4 100.0 564.0 100.0 11.8 598.0 100.0 6.0

Source: World Bank (2009)
Within the primary sector, agriculture has the lions share with 56.1 percent of the provincial GDP,
followed by fishing and animal husbandry with 13.6 percent and 11.7 percent, respectively. Figure 2
Bandundu: Evolution of GDP Composition (2006-2008) also shows that the primary sector has changed
the dramatically in terms of composition between 2006 and 2008, mainly due to the dramatic increase in
fishing (5.4 percent in 2006 vs. 13.6 in 2008).
Agriculture is predominately for subsistence household consumption, with only 1-2 percent of the value
of production coming from industrial production over the period 2006-08. More than 75 percent of
production over this same period consisted of basic foods such as Manioc, Corn and Potatoes.
7

Industrial cattle-raising is limited to a few foreign investors, like the Jules Van Lancker Co. in the
territory of Mushie and the Socit des Elevages du Bandundu Occidental in Bandundu-Ouest recently
acquired by the Orgaman Holding. Cattle are raised for local consumption in the Kwango and the Kwilu
districts. The territories of the Ma-Ndombe and the Plateaux have the most productive cattle (20 to 25
heads/ km
2
), but cattle are under threat by Nagana.
8
Because of the aridity of the land in the Kwango,
breeding is less productive (10 to 15 heads/ km
2
). In 1985, the province counted more than 1,339,830

7
World Bank estimates.
8
Nagana, also called nagana pest or Animal African Trypanosomiasis, is a disease of vertebrate animals. The
disease is caused by trypanosomes of several species in the genus Trypanosoma. The trypanosomes infect the blood
of the vertebrate host, causing fever, weakness, and lethargy which leads to weight loss and anemia; in some animals
the disease is fatal unless treated. The trypanosomes are transmitted by tsetse flies.
67
11 | P a g e

heads of cattle. The wars (1996-97 and 1998-2002)
9
and phyto-sanitary issues adversely affected the
sector.
Bandundu is covered with large equatorial forests in the east and north of the Ma-Ndombe that are
exploited industrially for exports. Other forest areas in the Kwilu, Kwango and Kansongo-Lunda are
being destroyed by rapid deforestation.
Mining remains artisanal and is mostly mining of alluvial diamonds in rivers that have their sources in
Angola. The Provincial Government has banned diamonds extraction along the shores of the Kasa River,
wanting to develop it more formally. Coltan and gold have been noted in the Kwango and the Plateaux.
Oil reserves have also been identified in the territories of Oshwe, Kutu and Bagata
10
.

Figure 2 Bandundu: Evolution of GDP Composition (2006-2008)


Describing growtb collapse
With more than 15,000,000 million hectares suitable for forestry and 1,500,000 million for agriculture,
11

Bandundus growth path has been historically linked to the fate of its primary sector. While the province
was once the main national exporter of palm oil and the main producer of cassava (manioc), Bandundu
has recently seen its agricultural production drop dramatically from the time of Zairanization.
12
The
province also exported timber, coffee and cacao and it had a large cattle and fishing industry, mainly for
domestic consumption. Today, production is far below potential and only a fraction of the Provinces
past output levels.

9
Chambre de Commerce et de Promotion Industrielle du Bandundu. 2006. Bandundu, Terre dAffaires.
10
11
Monographie de la province du Bandundu. 2005.
12
In 2005, Bandundu was the third producer of palm oil, the third producer for maize, the fourth for rice, and the
first for peanuts, however . Monographie de la province du Bandundu, 2005.
A
l
8
l
1 S
n1 S
C
68
12 | P a g e

Industrial production of palm oil began around the 1920s. In 1980, there were 56 functional palm oil
refineries in Bandundu. In 2004, that number fell to 4, as all the refineries in the territory of Idiofa and
the majority of those in the Kwilu closed.
13
In this context, the relevant question is what factors could
help explain such a collapse in the provinces main export industry, and what are the chances for recovery
or substitution in the sector?
Tbe collapse of a monoindustry Palm oil
Prior to independence, the DRC was one of the largest palm oil producers in the world. As the center of
the palm oil industry in the country, Bandundu contributed the lion's share of palm-oil exports.
Production was mainly located in the Kwilu district. A significant number of private foreign investors
were engaged in the sector, such as Unilever, which as the largest investor had about 50,000 ha of palm
plantations in Bandundu.
The waves of nationalization following the Zarinisation of 1973-4 plunged the economy in Bandundu in
a deep downward spiral. The palm-oil sector had been strongly dependent on foreign investment
(Belgian, British and Portuguese). After the nationalization of these assets, the economy collapsed and
has yet to recover. The monetary crisis of the mid-90s and the loss of global competitiveness of the
coffee, cocoa and palm tree exports further eroded the agro-industrial base in Bandundu. Industrial
agriculture was devastated, leaving only subsistence agriculture and a few other cash crops. A few
foreign companies remained invested in cattle and forestry concessions in Bandundu; their impact, though
sizeable, remains localized.
Figure 3 DRC: Palm Oil production over several years (thousand tons)
Source: Zaire Department of Agriculture, IFPRI, IMF
14

The collapse in palm oil production at the national level was catastrophic (see Figure 3). In the absence
of specific stats on production in Bandundu, we still may infer from the national output that the mono-
industry of the province was hit by a massive collapse. Before independence, the country produced
400,000 metric tons. By 1963, output had been more than halved to 185,000 metric tons, auguring more

13
14
Prior to independence: Zare - A Country Study (Library of Congress, 1995.) 1961-1983: Zare Department of Agriculture.
Quoted in The effects of trade and exchange rate policies on agriculture in Zare (1986), Tshibaka, Tshikala B. International
Food Policy Research Institute (IFPRI). Series number: 56.1996-2005: Democratic Republic of the Congo: Selected Issues and
Statistical Appendix, IMF (2001 and 2007).
0
20
40
60
80
100
120
140
160
180
200
1963 1965 1970 1973 1975 1976 1980 1983 1996 1998 2000 2001 2005
69
13 | P a g e

than three decades of collapse. In the aftermath of the Zarinization, production dropped even further to
under 100,000 metric tons. From 2000 to 2004, production came to a virtual stop at 4,000 metric tons, or
about 1 percent of the total output of palm oil the DRC produced in the years prior to independence.
Output picked up again in 2005 to 1994 levels, but palm oil output remains insignificant compared to pre-
independence levels (see Figure 3).
Table 3 illustrates another interesting phenomenon. As palm oil output collapsed and investors were
expropriated after 1973, some appear to have shifted production to coffee
15
, for which output marked a
small increase in the years following the Zarinization. Tobacco was briefly introduced in the territory of
Bagata in the 1980s; the culture, however, could not thrive as local farmers claimed they could not find
industrial buyers. Cocoa was grown in the districts of Ma-Ndombe and Plateaux, with little success.
Similarly, most rubber plantations were gradually abandoned.
Table 3 DRC Agriculture production (pre-independence2005)
DRC, Output of selected major crops, several years (1,000 metric tons)
Year Maize Rice Groundnuts Palm Oil Coffee Cotton
Prior to Independence 400
1963 252 60 130 185 49 43
1965 232 49 137 120 30 19
1970 428 179 267 170 59 49
1973 459 199 299 153 57 68
1975 495 207 308 145 51 27
1976 504 212 315 129 89 24
1980 562 240 339 93 74 29
1983 668 258 367 81 63
1988 78 10
1990 81 10
1992 33 9
1994 18 63 9
1996 19 74 9
1998 17 54 9
2000 4 21 9
2001 4 5
2005 18 5
Source: Zaire Department of Agriculture, IFPRI, IMF
16

A cycle of low productivity and investment

The collapse of the industrial agriculture base, has contributed to a vicious cycle of low productivity
reinforcing low investment. It seems that productivity is low even in comparison with other provinces in
the DRC, as indicated by the low labor costs compared to other provinces (see Table 4). Low labor
productivity seems to be due to low technological capacity and low capital stock in agricultural

15
Coffee was grown in the Ma-Ndombe and the Plateaux districts, as well as in the Kwilu where culture is
expanding.
16
Prior to independence: Zare - A Country Study (Library of Congress, 1995.) 1961-1983: Zare Department of Agriculture.
Quoted in The effects of trade and exchange rate policies on agriculture in Zare (1986), Tshibaka, Tshikala B. International
Food Policy Research Institute (IFPRI). Series number: 56.1996-2005: Democratic Republic of the Congo: Selected Issues and
Statistical Appendix, IMF (2001 and 2007).

70
14 | P a g e

enterprises. The low intensity of capital in agricultural exploitations in Bandundu relative to the rest of
the DRC is due to a severe shortage of investment, which is constrained by the lack of finance in the
province.
Table 4 Bandundu: Selected indicators for agricultural exploitations

% of Households
having an agricultural
exploitation
Number of
Effective
workers
Labor Cost
(1,000 CDFs,
per year)
Bas-Congo 55.4 2 365
Bandundu 75.1 3 382
Equateur 72.5 2 609
Orientale 56.7 3 478
Nord Kivu 44.7 3 1,269
Maniema 55.0 2 527
Sud Kivu 44.5 2 468
Katanga 57.3 2 1,655
Kasa Oriental 56.2 3 1,196
Kasa Occidental 61.5 3 545
Source: Enqute 1-2-3 (2004-2005)

Box 1. An example of agriculture revival: Dima Farms
The collapse of the stock of capital was anecdotically evidenced while visiting Dimaonce a bustling
city along the Congo River which production was shipped directly down the Congo River to Kinshasa
and further exported. Today, Dima is all but in ruins. The refineries have long stopped working, the
warehouses have been abandoned. The equipment and machines that have not been looted lay discarded
under rust and the weeds.
One farming estate, however, is being rehabilitated through the courageous efforts of a couple of private
entrepreneurs from Zimbabwe. These entrepreneurs have embarked on an ambitious and impressive
project to restart production and create income opportunities for the local population. They have
replanted palm oil. They have also introduced new cultures, such as eucalyptus and rare essential oil
plants, in an effort to introduce alternative income-generating crops, enrich the soil and improve soil use
year-round, and diversify risk. They are growing sugar cane, to provide for the local as well as the
national market. They have relied on the expertise of Congolese technicians, welders and engineers
formerly managing operations on Dimas former plantations. The work of these technicians and skilled
workers are essential to maintain the aging machinery and merchant vessels, much of which dates back to
the Colonial period.
17

As inspiring as the business experiment Dima Farms is, it remains to be seen whether the business model
could be sustained or expanded, due to bad domestic finance and lack of access to international finance.
Despite its strategic geographic proximity to the larger markets of Kinshasa and Bas-Congo and its
expansive network of navigable rivers, Bandundu remains unable to mobilize international finance, to
leverage its agricultural potential.

17
Visit to Dima Farms. Dima, Bandundu. July 2009.
71
15 | P a g e

Poverty Profile
Poverty Incidence
Bandundu is the second poorest province in the DRC. Almost 90 percent of the population lives
below the poverty line; substantially above the national average of 71.3 percent. Only Equateur
ranks ahead of Bandundu in the ranking of poverty concentration with a poverty rate of 93.5
percent.
The analysis employs presents measures poverty in Bandundu using three different poverty
measures (see l ). The headcount ratio provides the proportion of the population living with
income per capita below the poverty line. The poverty gap measures the average distance of the
poor population from the poverty line, and the squared poverty gap gives an indicator of the
intensity of poverty. According to these measures, not only is the proportion of people living in
poverty twenty points higher than the national average (89.1 percent vs. 71.3 percent) but also
the poverty gap of people below the poverty line is 40 percent higher than the average of the
country (at 1.4). Moreover, the squared poverty gap suggests that extreme poverty is also
substantially higher in Bandundu relative to the national benchmark. In short, not only does
Bandundu show a disturbingly high number of poor people, but also poverty is much severe than
in the rest of the country.
Within Bandundu poverty is concentrated in rural areas, which represents nearly 80 percent of
the regions population and where 92 percent of the population lives below the poverty line.
Looking at both the poverty gap and the squared poverty gap, l .b shows that rural areas
count more people living under the poverty threshold (91.7 percent) relative to urban areas
(71.97 percent), but also the intensity of poverty is substantially higher. On the other hand
poverty levels in urban areas are similar to national average. This suggests pro poor policies in
Bandundu should target rural areas not only because of the largely poor rural population, but also
because extreme poverty is more severe in rural areas.

72

a) Bandundu vs. DRC: poverty

Source: DRC Poverty Diagnostic 2006

Together with Equateur, Bandundu
agriculture for their primary source
and fishing play the most important

Figu
Primary source of inc
Source: Authors calculations based on 1-2-
These numbers have a clear
development in agriculture is a
Bandundu. Thus, removing the
biggest pay-offs for reducing pov

U l l o a , K
Figure 4 DRC: Poverty

y levels b) Bandundu: urban and ru

based on Enqute 1-2-3, 2004-2005
is the province where households are the most depen
of income (see Figure 5). Bandundu is the province
t role as secondary sources of income.
ure 5 Sources of income in agriculture
come Secondary source
-3 survey (2005)
policy implication. The binding constrain
at same time the binding constraint for pove
binding constraint to agriculture development
verty, especially severe rural poverty.
16 | P a g e
a s t & K e k e h
ural poverty levels

ndent on
e where agriculture
e of income
nt for economic
erty reduction in
will produce the
73
17 | P a g e

Zooming even further within Bandundu Province the analysis shows that poverty is distributed
unevenly across different sub-regions. With 97 percent of poverty headcount, Kikwitonce the
center of economic activity in the Provincecounts almost the totality of its population under
the poverty line, while Temboa region closer to Angola and with mining resources
(diamonds)has a much lower poverty rate (63 percent) than in the rest of the province (89 percent)
and the country.

Figure 6 Bandundu: Poverty levels by sub-
region Figure 7 Human Poverty Index

Source: DRC Poverty Diagnostic 2006 based on Enqute 1-2-
3, 2004-2005

Source: Human Poverty Index (UNDP)

The different measures of human deprivation provide an insight into the evolution of poverty levels.
Between 2001 and 2006 the level of human poverty in terms of the Human Poverty Index deteriorated
during the first three years and then improved up to the initial levels (Figure 7). During this period, the
gap between Bandundu and DRC remained constant, suggesting that Bandundu continued to perform
poorly economically.

90%
91%
97%
63%
89%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BANDUNDU
VILLE
KENGE KIKWIT TEMBO
% Poverty Bandundu Average
44.6
45.9
44.8
38
39
40
41
42
43
44
45
46
47
Human Poverty
Index 2001
Human Poverty
Index 2003
Human Poverty
Index 2006
National Bandundu
74
18 | P a g e

2.2 Poverty and education
Bandundu shows enrollment rates above the national average, despite being the second poorest province
in the country
18
(Figure 8). Likewise, illiteracy rates for the population over fifteen years are lower in
Bandundu than in the rest of the country.
Figure 8 Enrollment rate (net)
a) Enrollment rate: Bandundu vs. DRC b) Enrollment rate: Bandundu sub-regions

Source: MICS-2 (2001) Source: Authors calculations based on Enqute 1-2-3, 2004-
2005

In summary, evidence suggests that access to schooling is not a binding constraint for poverty
reduction. This is particularly evident in the case of Tembo. The sub-region bordering Angola has the
worst enrollment rates in the Province, but also has the lowest poverty levels in the Province, as the
diamond industry provides alternative sources of income for the low-skilled population.

Poverty and bealtb
Recent health surveys indicate mixed results as relates to health outcomes and access to health facilities.
The proportion of children suffering from malnutrition in Bandundu is increasing over time, as indicated
by the percent of children with stunted growth (see Figure 9). While Bandundu had a lower rate of
stunting than the rest of the country according to a 2001 study, in 2007 rates of stunting surpassed the
national average. Access to health facilities is somewhat better in Bandundu as compares to other parts
of the country. Infant vaccination rates are higher compared with the rest of the country (see Figure 10),
although infant mortality remains on par with the national average. Regarding the availability of health
centers, the ratio of population per health center in Bandundu is forty percent lower the national
average.
19
On the other hand, the 2007 DHS study also found that in Bandundu only 28 percent of the
population had access to safe drinking water, compared to a national average of 46 percent.

18
MICS-2. 2001
19
DRC. Ministry of Health. 2007.
54.8
48.6
51.7
59.7
54.9
57.3
net scholarization
rate for 6-11 yr
boys
net scholarization
rate for 6-11 yr girls
net scholarization
rate for 6-11 yr total
National Bandundu
Bandundu
Ville
Kenge Kikwit Tembo
net scholarization rate for 6-11 yr
net scholarization rate for 6-11 yr [Bandundu
Average]
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19 | P a g e

Figure 9 Ratio of stunted children Figure 10 Vaccinations: Bandundu vs. DRC

Source: MICS2 (2001) and DHS (2007) Source: Enqute Dmographique et de Sant (EDS RDC 2007)

Poor health outcomes, therefore, seem to be linked primarily to households poverty levels, rather than
availability of health services. Overall health outcomes are poor, but indicators of access to health
services are better in Bandundu than in the rest of the country. This suggests that access to health is
neither the cause of poverty nor a binding constraint for poverty reduction. While health services
may be available, the population appears to be too poor to afford these services, or other products that
might also be beneficial for health (nutritious foods, etc). Better access to health services would not
improve health outcomes unless economic activity could re-start.
Summary
Evidence suggests limited access to health or education is not the cause of the high levels of poverty
registered in Bandundu. Even though the province has the second largest poverty incidence in the DRC,
access to health and education services is higher in Bandundu than are in the rest of the country, thus
indicating that poor health outcomes are more a symptom than a cause of extreme poverty.
Consequently, poverty in Bandundu will not be effectively reduced through social policies aimed at
improving access to education and health care. Policies in that direction will have at best a marginal
impact on poverty reduction. Poverty will not be reduced until economic activity is re-established. In
other words, Bandundu needs more economic interventions than social policies.

38.2
45.5
36.7
46.8
0
10
20
30
40
50
children under 5
stunted [MICS2 2001]
children under 5
stunted [DHS 2007]
National
Bandundu
30.6
17.6
44
11.3
0
10
20
30
40
50
% of children 12-23
mo currently
vaccinated against
ALL childhood
diseases
% of children 12-23
mo currently
vaccinated against
NO childhood
diseases
National
Bandundu
76
20 | P a g e

Applying tbe Crowtb Diagnostics Frameworh
Applying the HRV framework, the study will explore the relative scarcity of different factors and the
potential constraints they might constitute for growth and private investment. The chapters below will
discuss whether the most binding constraint lies in: (1) poor access to finance; (2) low return on economic
activities; or (3) low appropriability of returns on investment.
Is access to finance a binding constraint
Despite its comparative advantage in human capital endowments and proximity to markets in Kinshasa,
Bandundu is the only province in the country that has not attracted any new investment project through
the ANAPI-sponsored incentives agreement since 2006
20
(Table 5).
Using the HRV framework, the study argues that the lack of new investments from both domestic and
foreign sources
21
is a result of poor access to finance for the agriculture sector, which in turn is delaying
the development of industrial agriculture.
Table 5 DRC: Private Investment Projects (2003-2008)
2003 2004 2005 2006 2007 2008* Total %
Kinshasa 39 49 51 46 53 46 284 44.5
Inter-Province 40 36 26 19 10 21 152 23.8
Katanga 15 6 12 9 18 25 85 13.3
Bas-Congo 8 8 5 5 5 8 39 6.1
Kasa Oriental 7 2 3 4 2 1 19 3.0
Nord-Kivu - 2 - 5 4 3 14 2.2
Equateur 1 2 2 2 3 1 11 1.7
Kasa Occidental 1 3 2 1 2 1 10 1.6
Bandundu 1 3 3 0 0 0 7 1.1
Sud-Kivu - 1 - 2 2 1 6 0.9
Maniema - - - 0 0 3 3 0.5
Total 112 114 104 96 100 112 638 100.0
Source: ANAPI (2008).
*Ongoing and completed projects
** Excluding mining and timber projects

Sources of formal finance are severely limited throughout the province. No commercial banks are
operating in Bandundu-Ville, the capital of the province, where financial intermediation is provided by
money transfer agencies. Only one commercial bank is reportedly operating in Kikwit. In the rest of the
province, a few NGOs appear to offer scarce micro-credit loans at high interest rates (above 40 percent).

20
ANAPI (2008).
21
The incentives package sponsored by ANAPI consists mainly of direct tax exemptions to companies. The
package does not include mining or timber investment projects.
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21 | P a g e

The small size of the formal banking sector, as well as the weak resources of its depositors, is
demonstrated in Table 6.
Table 6 Bandundu: Short-term vs. long-term deposits, 2007 (000 CDF)

Sight Deposits Term Deposits

2005 2004
Kinshasa 120.044 19.947
Bas Congo 4.946 18
Bandundu 98 0.3
Equateur 98 0.4
Orientale 533 n.a.
Kivu 9.479 220
Katanga 16.067 79
Kasa Oriental 1.242 5
Kasa Occidental 539 5
Source: BCC (2007)
Informal sources of finance are also limited. Households in the province have little disposable income for
savings and investment due to the severe levels of poverty and the importance of subsistence agriculture
for household earnings. Table 7 illustrates this crisis of lack of finance, as no self-owned funds, family-
owned funds and/or informal saving schemes (tontines) are reported in the most recent household
survey.
Table 7 DRC: Access to credit for working capital

% of
Households
Purpose Source
Production Operation Equipment
Commercial
Bank NGO
Parents/
Friends Tontine
Bandundu 0.2 100 0 0 0 100 0 0
Orientale 1.9 61.7 22.2 0 2.2 0 1.3 16.6
Nord Kivu 1.3 24.3 1.6 0.5 0.5 15.6 1 5.4
Sud Kivu 6.5 25.1 31.2 5.2 3.9 0 3.5 0
Katanga 4.1 27.7 1.6 4.8 1.9 6 2.5 14.1
Kasa Ori. 0.7 91.1 0 0 0 0 0.7 0
Kasa Occ. 3.1 0 4.9 0 15.5 21.8 0.2 40.5
Source: Enqute 1-2-3 (2004-2005)
In fact, the province has the lowest ratio of households with access to working capital in the country (see
Table 6). Households lack access to credit for working capital, with only 0.2 percent reporting any
availability of financing (otherwise prohibitively expensive and provided by NGOs). This is by far the
worst ratio in the country, even worse than in the eastern provinces that have been affected by civil war.
Moreover, given the virtual lack of external finance, the average loan, when available, is just about 6,000
CDF (around US$8 as of October 2009). As Table 6 also indicates, micro-loans are being used for
production rather than for capital investment, perhaps because of the small size and short terms of the
loans.
Access to finance is a binding constraint for the non-agricultural sector, the development of which is
important for the diversification of the provincial economy (see Table 8). Bandundu shows the lowest
ratios of initial capital for non-agriculture family enterprises of any province, and has the lowest
percentage of initial capital financed through self-owned or family savings (low savings can be explained
78
22 | P a g e

by the high poverty levels and the lack of any additional income-generating activities outside the primary
sector). The province also has one of the lowest average values of equipment, suggesting high capital
depletion due to a lack of new investment and/or re-investment. Only Equateur shows a worse ratio,
having suffered from the impact of the wars whereas Bandundu was more insulated.

Table 8 Bandundu: Funding of non-agricultural family enterprises

Initial
capital
(1.000
CDF)
Current
Value of
Equipment
(000 CDF)
Source
Banks Friends Family
Own
Savings
Tontine NGO
Bas Congo
5.663 4.714 1.7 4.3 20.5 57.6 6.8 9.1
Bandundu
2.626 3.351 2.2 9.0 16.7 31.4 1.5 39.2
Equateur
3.084 3.171 2.3 2.4 31.3 43.0 2.5 18.5
Orientale
4.713 5.588 2.4 12 29.3 34.4 10.5 11.0
Nord Kivu
7.993 7.851 0.0 7.2 18.2 45.3 4.0 25.3
Maniema
9.356 9.022 3.8 11.0 38.6 33.0 3.5 10.1
Sud Kivu
9.230 9.292 2.9 3.0 19.9 47.8 1.3 25.2
Katanga
5.928 3.869 0.7 3.1 32.8 40.8 6.7 15.9
Kasa Ori.
11.154 4.101 0.0 9.9 23.3 43.9 5.5 17.4
Kasa Occ. 13.597 9.582 4.4 7.3 22.6 45.9 50.0 19.4
Source: Enqute 1-2-3 (2004-2005)

The agricultural sector also suffers from constraints in the availability of financing, which has resulted in
a mainly subsistence based agricultural sector rather than an industrial one. Recent country-wide trends in
finance away from the agricultural sector have worked to the detriment of Bandundus predominately
agricultural economy. As Table 9 shows, credit allocated to agriculture in the DRC has sharply decreased
from 30 percent around pre-war levels (1994) to 6 percent in 2007. In 1994, one-third of the allocated
credit in the country went to agriculture. In contrast, after decades of destruction due to the wars and
political instability, which resulted in shrinking purchasing power and increasing reliance on subsistence
farming, the share of agriculture in investment has dropped to one-fifth of its 1994 level. Though this
data is available at the aggregate national level, we can still infer some implications for Bandundu, given
its high dependence on agriculture. By contrast, in other provinces such as Bas-Congo, Katanga, Kasa or
North Kivu, investments in industry, mining and commerce have helped buffer the shock of the collapse
in agriculture and provide some continuity in household income.

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23 | P a g e

Table 9 Credit to the Private Sector by Activity (share over total)
1994 2001 2002 2003 2004 2005 2006 2007
Agriculture
29.4 26.1 30.6 11.0 8.2 8.1 9.0 5.9
Mining
0.6 0.7 0.6 0.7 14.9 12.3 6.8 8.0
Industry
15.8 19.5 16.2 15.6 16.3 11.9 6.9 6.2
Public Works
1.7 2.1 1.4 1.1 3.1 5.4 3.7 1.7
Energy
0.1 1.7 0.4 1.4 0.7 3.3 0.2 3.9
Transport
10.3 7.0 4.3 6.6 7.6 5.8 18.3 10.2
Distribution
19.4 21.0 22.8 33.7 17.5 16.1 19.7 14.6
Commerce
3.21 0.11 0.32 n.a. n.a. n.a. n.a. 0.19
Others
19.45 21.76 23.52 29.84 31.71 37.24 35.39 49.48
Source: BCC (2007)
The lack of credit finance in Bandundu does not appear to be a demand-driven issue. Demand for credit
appears to exist
22
and small-scale projects in agriculture diversification have been developed across the
province (e.g. ranging from high value-added eucalyptus and rare essences plants to tilapia farming etc.),
but there are inadequate resources to expand or replicate these small initiatives to a level where they
might have a sizeable impact on economic growth and poverty alleviation. Bandundu is faced with scarce
supply in finance; notwithstanding high collateral requirements from banks and short maturity terms,
which are bottlenecks across all provinces in the Congo. By contrast, other provinces have managed to
allocate credit finance to local agricultural enterprises.
As the data above show, credit finance from formal and informal sources shows disproportionate
signals of scarcity. The study concludes that most binding constraint for Bandundu is in scarcity of
finance. Poor access to finance affects both private investors already in the province and deters the
entrance of newcomers.

Is it lach of social returns to economic activity
Using the HRV framework, the paper will discuss whether social returns to the marginal investment
project may not exist due to low productivity and the lack of complementary factors, such as human
capital or infrastructure.
Is it geograpby
Delimited by the Congo River, Bandundu shares a border to the north with the Equateur Province and to
the northwest with the Republic of Congo (345 kms.) To the south, the province shares 1.200 kms of
border with Angola. To the east lies the province of Kasa Occidental and to the west the Provinces of
Bas-Congo and Kinshasa.
Bandundu enjoys an impressive fluvial network with an extended river and lake system (3,131 kms),
making the province the second largest hydrologic reservoir in the country after Equateur.
23
Most of the

22
Mission to Bandundu
23
In addition to the Congo River, the major waterways in the Ma-Ndombe and Plateaux districts are: the Kwa,
Fimi, Lotoy, Lokoro, Lukenie, Kasa and Kwango and Lake Ma-Ndombe. The district of Kwilu is irrigated by the
Kasa, Loange, Kwilu, Inzia, Kwango and Wamba rivers. The latter two also cross the Kwango district.
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24 | P a g e

provinces rivers are navigable year-round like Lake Ma-Ndombe, the Lukenie River bordering the Kasa
Occidental, the Kasa River from east to west, the Kwilu from north to south connecting Kikwit to the
Kasa and the Congo rivers.
Thus, geography is not a valid suspect as a binding constraint to growth and investment. Bandundu
enjoys a strategic proximity to Kinshasa and Bas-Congoand through them access to the Ocean. But that
proximity has yet to translate into trade and investment benefits for the local economy, since the collapse
of the palm oil industry.
Is infrastructure a current binding constraint to growtb
Roads
The province of Bandundu counts 2,134 kms of national roads (RN), composed by 457 kms
bituminized roads (though mostly dilapidated) and 1,677 kms of dirt routes. There are also 2,371
kms of priority provincial roads and 2,707 kms of secondary provincial roads. The total road
network entrusted to the national road agency, Office des Routes, includes over 9,700 kms.
24
The
majority of this network is extremely degraded, and most roads are impassable during the rainy
season. Moreover, out of the 314 bridges in Bandundu, up to a 60 percent are in very poor
condition. By comparison, France, which is about half the size of Bandundu, has 1,000,960 kms
of roads.
25

The rural population is largely cut-off from the rest of the country due to the weakness of the
infrastructure. There are 23,129 kms of agricultural service roads, 80 percent of which are no
longer functional.
26
Farmers, particularly poor farmers in the remote districts of the Kwango and
Ma-Ndombe are affected by the lack of infrastructure maintenance.

Table 10 Bandundu: Households with access to infrastructure at a reasonable distance

Market less
than 5km away
Road in fair
condition less than
2km away
Paved road less
than 2km away
Bus station less
than 2km away
In percent of households
Kinshasa 98.6 97.9 92.7 89.5
Bandundu 58.5 88.0 20.5 40.1
Orientale 71.5 69.5 60.5 43.2
Nord Kivu 84.2 88.3 94.3 49.7
Sud Kivu 88.8 91.0 35.6 83.3
Katanga 74.1 94.5 93.8 68.6
Kasa Oriental 90.7 98.1 83.3 79.2
Kasa Occidental 95.2 98.8 97.9 48.2
Source: Enqute 1-2-3 (2004-2005)

24
25
Transport in France. International Transport Statistics Database, IRAP.
26
Monographie de la province du Bandundu. 2005.
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25 | P a g e

River ways and connectivity
The Congo and the Kasa Rivers connect the main cities of Bandundu-Ville and Kikwit to the
two main markets of Kinshasa and Ilebo (in Kasa Occidental). The rivers also connect small
villages and towns to the many tributaries in the Kwilu district, which is home to nearly half of
the population. Due to the accessibility of its river transport system, Bandundu once was the
main exporter of food and agriculture products to Kinshasa, supplanting trade from Equateur
during the war years. Between 1999 and 2001, Bandundu tripled the tonnage of food exported
(up to 11.000 T per month
27
).
Today, most of the trade along the provinces river-ways is now done by private river transport
operators, who have taken over following the collapse of the transportation para-statal agency
(ONATRA) due to lack of investments.
28
River freight is organized by these private operators,
including some foreign-financed private operators, from Kinshasa to Ilebo (800 kms along the
Congo and Kasa Rivers, as well as from Kinshasa to Kisangani (1.734 kms
29
). Similarly,
Kinshasa and Kikwit are linked by cargo trade along the Congo and the Kwilu Rivers. The
industry has suffered from the instability and the economic collapse, and today is reduced to five main
operators: TFC, Amato, NOCAFEX and LKS.
30

Connectivity

Reflecting the low density of Bandundus mostly rural population, Bandundu is the least connected of all
provinces in terms of distance to the closest market. Over one-half of the population (58.5
percent) lives farther than 5 km away from a market (see Table 10). Only about 20 percent of
the population is within 2 km of a paved road, but 88 percent of the population lives within 2 km
of a road in fair condition.

With the collapse of the infrastructure network and the secondary/feeder roads (voies de desserte
agricole) to the main national roads and river ways, small farmersat least those far away from
Kikwit, Idiofa and Bandunduare left with the only options are to cycle, walk or go by dugout
canoe, to move their goods to the main trading posts. In Bandundu, however, the majority of the
rural population engaged in agriculture is located in the center part of the province, particularly
around the fertile areas of Kutu and Mushie-Pentane, which are connected to Bandundu-Ville and

27
Tollens, Eric. September 2002. Food security in Kinshasa, coping with adversity. Catholic University of
Leuven, Working Paper 2002/66.
28
Interview by the authors. Kinshasa, DRC. 27 October 2009.
29
The journey from Kinshasa to Ilebo on the Congo and Kasa rivers takes about fifteen days; transport costs are 60
US $ per ton. The river journey from Kinshasa to Kikwit is four-day long; transport costs per tonnage are similar.
30

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26 | P a g e

to Bagata, along the Congo River via a relatively good network of secondary roads and river
ways.
31

32
It should be said, however, that the neglect of the provinces transportation
infrastructure and the resulting poor connectivity of the province reinforce the collapse of
commercial agriculture, leaving way to subsistence farming.

Figure 11 DRC: Diagrammatic Map of Transport

Air transport is an effective, albeit prohibitively expensive,
33
means of moving with daily air
links between Kinshasa and Bandundu as well as within the province (Bandundu-Kikwit).
Several national commercial airlines and the UN operate a busy fleet.

31
Chambre de Commerce et de Promotion Industrielle du Bandundu, 2006, Bandundu, Terre dAffaires.
32
See map of Bandundu.
33
A round-trip airfare Kinshasa-Bandundu Ville cost $xxx(I will check this in the reimbursement info, it should be
there) when the authors visited the province in August 2009.
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27 | P a g e

Despite the degradation of the infrastructure network, the study concludes that the lack of
connectivity within the province (through the secondary feeder roads network), while
serious, does not pose the most severe constraint to growth in Bandundu, at present.

Electricity
Endowed with many rivers and waterfalls, Bandundu has a large hydroelectric potential, albeit under-
developed. The Inga Dam provides electricity from Maluku on the outskirts of Kinshasa to Bandundu-
Ville. In the province, the national electricity company operates one hydro-plant in Kakobola, together
with two fuel-fired plants in Inongo and Kikwit.
The current supply of electricity in Bandundu is insufficient, covering only the three main centers of
Bandundu-Ville, Kikwit and Inongo. In 2003, the electricity service ratio was only 1.2 percent (849,749
active subscribers over a population of almost 10 million). The situation has since further deteriorated, as
the Inongo thermal power station is out of order.

Table 11 Bandundu: electricity outline
Type Location
Installed
Capacity
Population
in the area
Number of
Households
Number of
registered
customers
Customers/
total
population
Hydro Bandundu 15 MVA 261,541 43,590 1,138 2.6
Thermal Kikwit 1.350 KVA 503,736 83,956 500 0.59
Thermal Inongo 2.700 KVA 84,472 14,079 150 1.06
Total 849,749 141,625 1,788 1.26
Source: Monographie de la Province du Bandundu (2005)

Is buman capital a binding constraint to growtb

Human capital does not appear to be the most binding constraint for economic growth in the case of
Bandundu. In fact, educational outcomes in Bandundu are well above the national average, despite an
apparent lack of skilled jobs in the province. Bandundus economy was shrinking at a time when human
capitaland schooling as one proxywas increasing, as Figure 11shows. Looking at the average years
of schooling by cohort, Figure 5.8 shows that Bandundu started to divergefor the betterfrom the rest
of the country for the cohort of 40 years and above; in other words, capital accumulation increased, as
reflected in more years of education for each cohort under 45 years on average today.
84

Figure 12 Ba
Source: Auth
*DRC avera
The relative price of human capital
the binding constraint in Bandundu
percent lower in Bandundu compar
of the DRC).
34
This may be expla
capital intensity of private firms in B

Figure 1
Source: Authors c

34
Authors calculations based on Enqu
35
Due to data availability and problems
primary education.

8
S
U l l o a , K
andundu vs. DRC national average: Schooling
hors calculations based on Enqute 1-2-3 (2004-2005)
age excluding Bandundu and Kinshasa
l as a factor further reinforces the argument that hu
u. The private returns to one extra year of educatio
red with the national average (4.3 percent in Bandun
ained by the low demand of skills in the local econ
Bandundu.

13 Bandundu vs. DRC: Skilled
35
workers
calculations based on Enqute 1-2-3, 2004-2005
te 1-2-3 (2004-2005)
s in definition, skilled workers are defined as those having
uC 8
u
28 | P a g e
a s t & K e k e h

uman capital is not
on are about thirty
ndu vs. 6.2 percent
nomy and the low

g completed at least
85

Further, skilled workers do not rec
average; another indication that the
If human capital were a constraint,
But in Bandundu, non-skilled worke
of unskilled labor is low. Moreove
underpaid relative to the rest of the
due to the nature of the subsistence
human capital but also marginal pr
correlate to low capital intensity due
The relatively strong performance o
to the provinces entire population,
males (Figure 14). While educatio
human capital stock (in secondary
national average and only about ha
province is subject to gender inequa
Figure 14 Bandu
Source: Enqute EDS

While unable to be quantified due
from Bandundu toward Kinshasa a
would be an important means to
Kinshasa. Figure 15 presents the oc
of the provinces workers (45.6 per
In contrast, there are fewer salaried
percent).
U l l o a , K
ceive a disproportionate wage premium as compar
ere is not a shortage of human capital in the provinc
one would observe high returns to education and hig
ers earn slightly less than the national average, indic
er, Figure 12 shows that skilled workers in Bandund
e country; providing evidence that the demand for sk
economy of agriculture. Bandundu thus shows high
roductivity relative to the rest of the country; a cha
e to lack of access to finance.
of Bandundu in educational attainment, however, is
, with significantly lower educational attainment fo
on levels are higher in aggregate than in the rest o
participation rates) within the female population is
alf of Kinshasas levels, indicating that post-primar
ality.
undu vs. DRC: Stock of human capital by gender
RDC (2007)
to a lack of data, one might expect a brain drain
and the rest of the country.

One might also expect t
reduce poverty and to equalize labor returns in
ccupational profile of the population in Bandundu.
rcent) are agricultural workers vs. 41.3 percent at the
d workers in the province (5.9 percent) than the nat
29 | P a g e
a s t & K e k e h
red to the national
ce (see Figure 13).
gh prices for labor.
cating that the price
du are substantially
killed labor is low,
er accumulation of
aracteristic we can
not generalizeable
or females than for
of the country, the
slightly below the
ry education in the
r

of skilled workers
that labor mobility
Bandundu and in
It shows that most
e national average.
tional average (7.2
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30 | P a g e

Figure 15 Bandundu vs. DRC: Occupational profile

Source: Authors calculations based on MICS-2 (2001)

Bandundus economy does not create sufficient jobs to absorb the supply of its (higher than average)
educated population. Lack of employment (i.e. low demand for labor) is the key element behind
Bandundus extremely high poverty levels. Therefore, it is hard to argue that lack of labor supply (i.e. low
human capital) would be a severe constraint for economic growth.
In the HRV perspective, an increase in education under the current conditions will have no impact in
terms of economic growth or poverty reduction. On the contrary, it will further depress the wages of the
more educated population, with a potential effect of triggering high-skilled labor migration.
Coordinated effort is thus required to attract investment and investors into different sectors, including an
effort to diversify and enhance agriculture productivity. Without an engine for economic activity and job
creation in the province, one that attracts services and intermediary inputs providers, the local workforce
will remain trapped in a cycle of low income, low savings, and low investment.
With the possible exception of Kikwit,
36
the province appears to have been unable to build and nurture the
critical mass of entrepreneurs needed to invest in the province. Lack of entrepreneurship in the provincial
elite and the pursuit of rent-seeking and/or clientelistic privileges, due to the proximity to Kinshasa
might have combined to explain the under-investment in the province.

Is it low appropriability of investments returns
Do entrepreneurs fear appropriating the fruits of their capital and, consequently, refrain from investing in
anticipation of such problems? Appropriability constraints may stem from extortion in the form of taxes
or corruption, as well as from a breakdown of the rule of law. They may also derive from negative
externalities in information or coordination of markets.

36
which the authors were unable visit
7.2 7.2
41.3
5.9 6.7
45.6
0
5
10
15
20
25
30
35
40
45
50
% of population 15-
64 yrs who are
salaried workers
% of population 15-
64 yrs who are non-
salaried workers
% of population 15-
64 yrs who are
agricultural workers
National
Bandundu
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31 | P a g e

Covernment Failures

Is it Monetary and Fiscal problems?
As described in the national growth diagnostics study, fiscal issues have been a cause for concern for
provincial governments across the country. An ambitious decentralization effort
37
launched in 2007 now
stands at a delicate juncture, as progress towards fiscal decentralization has stalled. Fiscal revenue
transfers (rtrocession) from the central authorities have fallen short of set thresholds and often put the
provinces at odds with Kinshasa.
Over-fiscalization
The slow pace of the implementation of the fiscal decentralization process has left Bandundu as well as
all the other Congolese provinces struggling for predictable revenues. The restitution scheme, by
which the central authorities should cede a fixed percentage of revenues collected by the provinces, has
not worked thus far. Moreover, the division of roles and responsibilities between the competencies of the
national fiscal agencies (rgies) and the provinces has been a source of further conflict.
38
In Bandundu,
the provincial administration is pushing an ambitious effort to increase revenue collection from
agriculture production. As the national study shows, however, this may result in over-fiscalization,
further complicating the regulatory framework for investors.
Anecdotal evidence collected by the authors seem to suggest that although illegal tax collection
(i.e. gate-keeping) occurs along the main export routesespecially along the river ways the
economic significance of these forms of extortion (in terms of the total merchant value) remains
too small to represent a constraint to trade and growth. In fact, these informal tolls are more
often borne by transporters who factor them in their total coststhus creating a (second best)
price equilibrium. Local entrepreneurs
39
report these forms of extortion contribute to a poor
investment climate, and create uncertainties due to the arbitrary application of the legal and
regulatory framework. These informal tolls did not appear, however, to carry high shadow
prices that would deter investment.

37
See Ligeois, M. 2008, La Dcentralisation en RD Congo: Enjeux et Dfis. Groupe de Recherche et
dInformation sur la Paix et la Scurit.
38
Interviews by the authors on condition of anonymity. Kinshasa, DRC. 30 October 2009
39
Interveiws with private small exporter of rice to Kinshasa, to the agri-business farmers at the Dima Farms, to large
industrial timber and cattle raising firms in the Ma -Ndombe district, Interviews by the authors. Bandundu, DRC.
1st August 2009. Also, interviews. Kinshasa, DRC. 27 October 2009.
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Marhet Failures
Self-discovery

According to HRV (2005), the development process in less advanced countries is largely about
structural change: it can be characterised as one in which an economy finds outself
discoverswhat it can be good at, out of the many products and processes that already exist.
Self discoveryissues are potentially more important and the payoffs of addressing them are
much larger in the tradable sector, as the tradable sectors productivity can be scaled up to
supply world demand. A province (or a country) would be constrained by self-discovery if it
cannot find its niche; this is, if the country fails to discover its comparative advantage. We
dont see evidence of this in Bandundu.
In order to jump-start growth and make measurable progress on poverty alleviation, Bandundu
faces a challenge. On the one hand, the province has a strong potential source of growth due to
its proximity to Kinshasa and the Kasa region, as well as the untapped market of Angola, which
could serve as important markets for the provinces agriculture production. As discussed above,
Bandundu has yet to leverage its human and natural endowments to exploit these market
opportunities and grow. On the other hand, the province has yet to self-discover the industries
that will allow it to recover from the collapse of its mono-industry in palm oil.
Bandundus comparative advantage is in agropastoral activities, including agro industry, but the
province still needs to find ways to produce and integrate itself into the national and world
economy. The discovery challenge for it is twofold. First, how to structure the industry in a
non-plantation economy? Second, where in the production chain the advantages end. Should
Bandundu add value to its palm-oil into cosmetics or bio-fuels?
A number of constraints appear to be blocking the modernization and competitiveness of the
palm-oil sector. Some distinctive constraints of coordination appear to have prevented the re-
conversion/continuation of the provinces productive industries. A parallel may be drawn with
other important palm-oil centers under the Belgian colonization, such as Mbanza-Ngungu in
Bas-Congo that has also not recovered after its decline. It may be that exogenous forces of
globalization and delocalization contributed to making Congos palm industries non-competitive
vis--vis Asian agricultural producers. Whatever the factors behind the decline, Dima and
Mbanza-Ngungu were once thriving palm oil production centers; today both have become
emblematic ghost towns of the collapse of the sector.
In other words, it is not the case that lack of investment opportunities generates the lack of
incentives for banks to go be in Bandundu thus killing innovation. Rather, the lack of access
to finance is constraining new and profitable projects and initiatives from happening thus
blocking both, diversification and sophistication of the Bandundus product spectrum.

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Coordination failures
The challenge to Bandundu can be framed as a chicken-and-egg problem. The province is
unable to attract new activities outside of agriculture that would in turn generate a supply
response in financial intermediation and services. Poor access to credit further binds new
investments in the province. The vertical integration of the existing industriesmainly in timber
and cattle-raising in the northern districts of the provincesuggests that no tertiary sector is
currently viable.
The authors conclude that population will remain trapped in poverty, unless and until a
coordinated effort and support exogenous to the province to jack up the economy can be
mobilized. Left to its own devices, it is difficult to see how the province can reach scale.

Conclusion

In Bandundu, the local elite have failed to invest locally in contrast to the Kivus, Bas Congo or
Katanga, where a dynamic middle-class of entrepreneurs has successfully sustained the local
economy and seized new opportunities. In the Kivus, the towns of Beni and Butembo have
managed to engineer a home-grown economic dynamism, despite (or maybe because) being
far remote from Kinshasa and having had no delivery of public goods for years (paved roads,
electricity, in particular). The political power and clout that Bandundus elite gained under the
Mobutu regime may have encouraged rent-seeking and clientelistic attitudes. It fell short,
however, of translating into economic power for the province.
The growth diagnostic demonstrates that poor access to finance represents the most current
binding constraint to economic growth and poverty reduction in Bandundu. In Bandundu, more
than elsewhere in the country, the absence of formal domestic financial institutions compounds
issues of savings and credit needed for industrial agriculture.
A perverse cycle of: i) record-high dependency on agriculture; ii) lack of secondary source of
income; iii) low-scale, and (iv) low-technology productivity, contributes to further dependency
and poverty, keeping households from saving and investing.
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Policy Issues
As the poverty profile illustrates, poverty will not be reduced until economic activity is re-
established in the rural sector. Bandundu needs more economic interventions than social
policies.
Finance will be crucial for stimulating the economy by restarting the wheels of agriculture and
agricultural industry in Bandundu. Moreover, the market has failed to provide the information
and coordination needed for investors to begin to take advantage of the provinces resources and
location.
The recovery of the province is consequently linked to attracting a critical mass of private
investments to unlock the economy and create jobs and growth. Only by breaking the perverse
cycle of low income-low savings-low investment-low productivity will it be possible to re-set the
economy of Bandundu on the path of sustainable growth.
Training and technical skills would be vital to allow farmers to boost productivity, and in turn,
invest in small-scale financed projects. Efforts should also focus on means to finance local
agricultural cooperatives in production and trade.
A possible policy intervention could seek to create an external buyers cooperative of
agricultural products in the region, linked to graduated and flexible credit schemes. The
incentives of future returns on their investments would encourage farmers to streamline their
production in the more formal economy; generating in turn, households income to access credit
finance. Such a scheme would generate high social returns. It could be co-managed through
public-private partnerships with the private sector, framers and agricultural NGOs. The few
large-scale investors operating in the province have had no choice but to integrate vertically in
transportation, energy and finance etc. Identifying niche services that could directly
complement local agri-businesses could be an entry-point for creating new jobs. A combination
of micro-finance for small entrepreneurs, training in agriculture and private-public
entrepreneurship ventures would help develop of these complementary niche services to the
few viable industries in the province invested in agriculture, cattle and timber.

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References
1996-2005: Democratic Republic of the Congo: Selected Issues and Statistical Appendix, IMF
(2001 and 2007).
Banque Centrale du Congo. Rapport Annuel 2006.
Banque Centrale du Congo. Rapport Annuel 2007.
Banque Mondiale, 2005. Projet dappui la dcentralisation pour le renforcement des capacits.
Banque Mondiale, 2006. Document de Stratgie de la Croissance et de la rduction de la Pauvret de la
Province du Bandundu.
Chambre de Commerce et de Promotion Industrielle du Bandundu, 2006. Bandundu, Terre dAffaires.
Coopration Technique Belge, 2006. RDC: Rhabilitation et Entretien des Infrastructures Routires de la
Province du Bandundu (RIB 2).
Hausmann, Klinger, Wagner, 2008. Growth Diagnostics: A Mindbook.
Hausmann, Ricardo, Dani Rodrik, and Andres Velasco. 2004. Growth Diagnostic, mimeo, September. R.
Hausmann, D. Rodrik, and A. Velasco, "Growth Diagnostics," John F. Kennedy School of Government,
Harvard University, September, 2004.
Institut National dEtudes Dmographiques, 2002. La population du Monde, Gants dmographiques et
dfis internationaux, Cashier N 149.
Ministre du Plan, Rpublique Dmocratique du Congo, 2005. Monographie de la Province du
Bandundu.
Province du Bandundu, Gouvernement Provincial, 2008. Prsentation, Attentes et Projets de la Province
du Bandundu.
Tollens, E., 2002. Food security in Kinshasa, coping with adversity. Catholic University of Leuven,
Working Paper 2002/66.

92

Katanga Province,
DRC

2009
A u l k n k

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Table of Contents
Executive Summary ........................................................................................................................ 5
1. Introduction ............................................................................................................................. 8
1.1. Katanga at a glance .......................................................................................................... 8
1.2. Current Composition of GDP ......................................................................................... 10
1.3. Explaining Growth Collapse .......................................................................................... 11
1.3.1. From the end of Gcamines to the Congo wars ...................................................... 11
1.3.2. Katanga: A Dual Economy ..................................................................................... 16
2. Poverty Profile ....................................................................................................................... 18
2.1. Poverty and Education ................................................................................................... 20
3. Applying the Growth Diagnostics Framework ...................................................................... 23
3.1. Is access to finance the binding constraint? ................................................................... 23
3.1.1. Is it lack of international financing? ....................................................................... 23
3.1.2. Is it lack of domestic financing or poor intermediation? ........................................ 23
Summary ................................................................................................................................... 25
3.2. Is it lack of social returns to economic activity? ............................................................ 26
3.2.1. Is It Geography? ...................................................................................................... 26
3.2.2. Is infrastructure the binding constraint? ................................................................. 26
3.2.3. Is It Human Capital? ............................................................................................... 34
3.3. Is it Low appropriability? ............................................................................................... 38
3.3.1. Are micro-risks binding? ........................................................................................ 38
3.3.2. Are Macro-risks binding? ....................................................................................... 39
4. Conclusion ............................................................................................................................. 42
Policy Issues .............................................................................................................................. 43
References ..................................................................................................................................... 44

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3 | P a g e

Figure 1 Katanga Province and its districts .................................................................................... 9
Figure 2 Gcamines exports of copper, cobalt and zinc .............................................................. 12
Figure 3 Exports of copper, cobalt and zinc ................................................................................. 14
Figure 4 Poverty Levels ................................................................................................................ 18
Figure 5 Mining and Agricultural Poverty Levels ( percent) ....................................................... 19
Figure 6 Head of household poverty levels by type of job ........................................................... 20
Figure 7 Mining and Agricultural Schooling Rates ...................................................................... 20
Figure 8 Mining and non-mining zones and years of education ................................................... 21
Figure 9 Distance to School / Mining and Agricultural Zones ..................................................... 22
Figure 10 DRC: Spatial distribution of OECD and Chinas financed road projects .................... 32
Figure 11 Katanga: Interconnected Hydroelectric Plants (2007) ................................................. 33
Figure 12 Average Schooling Years by Age Cohort .................................................................... 34
Figure 13 Net Enrollment Ratio, between 6 and 11 years old ...................................................... 35
Figure 14 Mining and Agricultural Enrollment Rates .................................................................. 35
Figure 15 Average Years of Education in Mining and Non-Mining Zones ................................. 36
Figure 16 Private Returns to Education (% rate) .......................................................................... 36
Figure 17 Wages for by education level, mining and non-mining zones ..................................... 37

Table 1 Katanga at a glance ............................................................................................................ 8
Table 2 Katanga: GDP Composition 2006-2008 Constant 2006 Prices ....................................... 10
Table 3 DRC mining and transport sector, key statistics (1988-1994) ......................................... 13
Table 4 Katanga: Private investment by Sector (2008) ................................................................ 15
Table 5 Katanga: Production (millions of current US$) ............................................................... 16
Table 6 Katanga: Private Investment by Location and Sector (2008) .......................................... 16
Table 7 DRC: Agricultural Production (1986-2006) .................................................................... 17
Table 8 Congo: Access to credit for working capital ................................................................... 24
Table 9 DRC: Short-term vs. long-term deposits, 2007 (000 CDF) ............................................. 25
Table 10 Katanga: Financial situation of non-agricultural family enterprises ............................. 25
Table 11 Katanga: Households with access to infrastructure at a reasonable distance ................ 28
Table 12 Katanga: Total Installed Capacity and total Power Available (2008) ........................... 33
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4 | P a g e
ANAPI Agence Nationale pour la Promotion de lInvestissement
CDF Congolese Franc
DSCRP Document de Stratgie de la Croissance et de la rduction de la pauvret
EDS Enqute dmographique et de sant
FEC Fdration des Entreprises du Congo
GCAMINES Gnrale des Carrires et des Mines
MICS-2 Multiple Indicators Cluster Survey
NEPAD New Partnership for Africa's Development
PMURR Programme Multisectoriel d'Urgence pour la Relance et la Reconstruction
SNCC Socit Nationale des Chemins de fer du Congo
SNSA Service National des Statistiques Agricoles

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5 | P a g e
Achnowledgements

1
representing a wide cross-section of sectors, including private and public sector representatives,
civil society, bilateral and multilateral donors and members of the diplomatic community. The
team discussed with representatives from the main government agencies, including the Central
Bank, the Prime Ministers Office and several sector Ministries. At the provincial level, the team
met with the Governors of the Provinces of Katanga, Kinshasa and North Kivu, several Ministers
and their top aides. On the private sector side, the authors met with Congolese entrepreneurs and
businessmen. They spoke with as many Congolese actors as they could meet in the formal and
informal sectors. They interviewed executives of the largest industrial groups and private firms
in sectors ranging from finance, mining, agriculture, services, timber, cattle raising, construction
infrastructure, transport (air, road and rail), ship-building yards. The authors would like to
express a deep debt of gratitude for the time, the energy and the passion that all their
interlocutors invested in their research.
Development Cooperation Agency (SIDA) and to the World Bank Group for their financial,
technical and logistical support that made it possible to undertake this challenging study.
Johannes Herderschee and Markus Scheuermaier shared their expertise and provided assistance
and guidance to the team before, during and following their field visits to the DRC. Janine Mans
and Erinn Wattie provided valuable editorial support. The authors wish to thank the reviewers.
The staff and management of the World Bank Group representation in Kinshasa deserve the
teams sincere thanks for their invaluable assistance at any hour of the day when the team was
traveling across the country, and for generously sharing their knowledge of the history and
economy of the Congo. Francisca de Iruarrizaga, Hayoung Kim and Rodrigo Salvado offered
superb research assistance. The views contained in this report are those of the authors. The
authors would like to note that any errors, omissions, views and opinions contained herein are
solely those of the authors.

1
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6 | P a g e
Executive Summary
Katangas economy is characterized by a stark duality between mining and agriculture
that has created imbalances in the development of the province, with a more affluent
southern copper belt and poorer western and northern agro-pastoral regions.
Economic growth and collapse in Katanga, however, has been largely driven by evolutions
in the mining sector. Over the course of the 80s and 90s, Gcamines, the main national mining
company of Katanga, collapsed following years of mismanagement, capital depletion and lack of
investment in the mining sector. Katanga was plunged in a deep economic crisis that in turn led
to the economic and growth collapse in the Congo. After decades of falling copper and cobalt
prices, the economy of the province began recovering in the mid-2000s, boosted by renewed and
critical investments in the mining sector and in large infrastructure projects for the province. The
global financial crisis is unfortunately threatening to unravel the recent economic gains and the
stability of the province. At the same time, a complex and protracted process of revision of
mining contracts awarded over the period 1998 to 2003 might be contributing to discouraging
future foreign investment in the Congo, for creating much legal uncertainty and doubts.
The poverty diagnostic finds that the most discriminating dimension in terms of poverty in
Katanga is not the rural vs. urban dimension but the gap between mining vs. non-mining
center; a division that should drive policies for poverty reduction.
2
For health outputs and
coverage, Katanga ranks lower than the national average and below expected levels given its
income. Inequalities between mining and non-mining centers are pronounced and growing, and
access to basic services increasingly reflects these inequalities. The existing inequality between
mining- and agriculture-based populations in Katanga is one of its greatest challenges for
poverty reduction. The implications for policy are substantial: targeted social policies have a
greater chance than economic policies to positively impact poverty and social outcomes as long
as investments in the agricultural sector lag behind.
Velasco (HRV)
3
, finds that the mining and non-mining sectors have followed divergent
growth trajectories. Katanga today functions as a dual economy, with developing mining
zones in the south and backwater agricultural regions in the north. Each sector faces its own
main constraint to growth: i) agriculture appears most constrained by transport infrastructure and
by a lack of finance, whereas ii) the mining sector suffers most from appropriability constraints
and human capital shortages. This divide is a harbinger of the future socio-economic challenges
in the province.
The agricultural sector has been negatively affected by the degradation of transport
infrastructure in the province, which occurred after the collapse of Gcamines and other
mining interests. While the mining sector, driven by private investment, has benefited from

2
For all intents and purposes, non-mining populations are agricultural workers, as the share of services in the
economy is marginal.
3
Hausmann, R., Rodrik, D., & Velasco, A., 2004, Growth Diagnostic. John F. Kennedy School of Goverment,
Harvard University.
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7 | P a g e
alternate transport routes through Zambia and South Africa, the agricultural sector has
experienced no such response and, thus, finds itself constrained by lack of access to markets.
The most binding constraint for mining, and for the private sector in general, in Katanga is
low appropriability
4
, and adverse implications on the investment climate at the national level,
including the uncertainties related to the legal and regulatory framework at the national and
provincial levels. In particular, transparency of the regulatory environment is fundamental to
addressing bottlenecks to growth and private investment in the Congo. The overlap of national
and provincial fiscalization, manifested in a proliferation of taxes, the pressures (tracasseries)
by over-zealous tax and revenue collection collectors/agencies rgies, as well as the
uncertainties in the regulatory framework were cited as the top constraints to private investment
and growth in all the provinces the team visited. The study will delve further on these issues
when it looks at the national context.
Two other bottlenecks were identified as relevant: i) human capital, particularly for
mining; and, ii) access to finance, particularly for agriculture. While they are not the most
severe constraints confronting the economy of Katanga today, they would limit Katangas
recovery if they are not addressed in due time.
The current provincial Administration elected in 2007 is facing a test of leadership: its
ability to respond appropriately to the global economic downturn is being tested, while it must
face the devastating effects of the crisis on the provincial economy, particularly on employment
and investments in the mining sector. The forecast for the province is worrisome. The mining
sector has already lost hundreds of thousands of jobs and the slowdown has affected the poorest
most severelythe majority in the abandoned agricultural regions in the North. The overriding
task for the provincial Government is to find ways to mitigate the impact of the global downturn
and to continue its program of renewed infrastructure investments, at a time when revenues to
the province have plummeted. The economic recovery and growth of the Katanga province will
affect the economy of the whole Congo.

4
In the HRV model appropriability is defined as a set of constraints that would prevent a hypothetical investor
from entering the market and/or from optimizing the returns to investment. Appropriability is low in the case of
government failures (summed up under the label of expropriation) or market failures (or coordination of market
functions) that deter the investor from investing in a given country at a given time.
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8 | P a g e
1. Introduction

Table 1 Katanga at a glance
Katanga DRC
Population growth (annual percent) 3.9 2.9
Surface area (sq. km) (thousands) 496,9 2,344.9
Life expectancy at birth, total (years) 48 46.4
Mortality rate, infant (per 1,000 live births) 94.0 107.7
Literacy rate, youth female ( percent of females ages 15-24) 63.1
Literacy rate, youth male ( percent of males ages 15-24) 78.0
HDI (2006) 0.60
Poverty ( percent) 69.1 71.3
Urban Poverty ( percent) 67.1 61.5
Rural Poverty ( percent) 70.2 75.7
Source: World Development Indicators, DSRP 2005, INED 2002, UNDP, EDS RDC 2007, 1-2-3
Survey
5
and Authors own calculations.
*1995-2003

Katanga is the largest economy of the DRC. With an area of 496,000 km, Katanga registered
eight million inhabitants in 2007, a number that has nearly doubled since 1984. The province
has the highest rate of urbanization in the country (67.1 percent while the national average is
61.5 percent
6
), concentrated mainly around mining towns. The main cities are Lubumbashi
7

(1,113,352 inhabitants) and Kolwezi (820.,229); the secondary cities are Kapanga (635,388),
Malemba Nkulu (478,252), Bukama (427,840), Likasi (421,359), Moba (420.,302), Kalemie
(355,126) and Kamina (337,078)
8
. Compared to other provinces of the DRC, these are all large
cities (Figure 1).

5
6
UNDP (2009).
7
Formerly known as Elizabethville, Lubumbashi is the countrys second largest city and the capital of the province.
8
Monographie de la Province du Katanga (2005).
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9 | P a g e
Figure 1 Katanga Province and its districts

Katanga shows the highest rate of population growth nationally (3.9 percent). Over one-half of
its population is under the age of 15. The dependency ratio
9
is lower at 1.15 than the national
average (1.7.) This is indicative of a very large youth population, which presents unique
challenges for job creation (especially in urban areas), education and health services.
It is important to mention that according to the 2005 Constitution, the number of provinces in the
DRC will increase from eleven to twenty-five, and will divide Katanga into four new provinces:
Haut-Katanga, Tanganyka, Lualaba, and Haut-Lomami. Each of the new provinces will be
governed by a provincial legislative assembly and a government consisting of a governor, a vice-
governor, and up to ten provincial ministers. Each province will retain 40 percent of intra-

9
The dependency ratio is expressed as the proportion of (0-14 and 65+ year old inhabitants) to (15-64 year old
inhabitants.)
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10 | P a g e
provincial revenues, including taxes on exports of minerals, timber, and energy resources. The
remaining revenues will be contributed to the national budget
10
.
Current Composition of CDP
The primary sector is by far the largest contributor to Katangas GDP (66.9 percent in 2008),
followed by the tertiary (16.3 percent) and secondary sectors (11.7 percent). Between 2006 and
2008 Katanga saw the dramatic recovery of its mining sector that accumulated a remarkable
164.5 percent real increase in output and became the main contributor to the provinces GDP in
2008 (See Table 2). During this period, the primary sector accumulated a real growth of nearly
50 percent, despite the sluggish performance of agriculture, fishing and cattle raising. Most
likely as a consequence of the sharp drop in agriculture output in 2007, trade activities
plummeted in real terms in 2008, which led the tertiary sector to an aggregated real loss of 23.8
percent between 2006 and 2008. After a good performance in 2007, the secondary sector
experienced a sharp drop in 2008, showing a marginal real output gain of 2.2 percent between
2006 and 2008.

Table 2 Katanga: GDP Composition 2006-2008 Constant 2006 Prices
2006 2007 2008

Millions
FC

percent
of
GDP
Millions
FC

percent
of
GDP
06-07
percent
change
Millions
FC

percent
of
GDP
07-08
percent
change
Primary Sector
821,429 55.2 1.107.580 58.7 34.8 1,269,045 66.9 14.6
I. Agriculture, fishing and
breeding 544,650 36.6 430.890 22.8 -20.9 476,244 25.1 10.5
A. Agriculture
500,396 33.6 375.247 19.9 -25.0 419,807 22.1 11.9
B. Fishing
12,890 0.9 18.892 1.0 46.6 23,206 1.2 22.8
C. Breeding
31,363 2.1 36.750 1.9 17.2 33,230 1.8 -9.6
II. Timber
5,053 0.3 4.911 0.3 -2.8 4,966 0.3 1.1
III. Mining
271,725 18.2 671.778 35.6 147.2 787,834 41.5 17.3
Secondary Sector
230,895 15.5 291.840 15.5 26.4 221,355 11.7 -24.2
I. Industrial Production
170,279 11.4 223.607 11.8 31.3 159,208 8.4 -28.8
II. Electricity Production
54,905 3.7 62.559 3.3 13.9 57,272 3.0 -8.5
III. Water Production
4,122 0.3 4.025 0.2 -2.3 3,620 0.2 -10.1
IV. Infrastructure
1589,2 0.1 1647.9 0.1 3.7 1,254 0.1 -23.9
Tertiary Sector
415,493 27.9 439,624 23.3 5.8 309,539 16.3 -29.6
I. Trade
409,444 27.5 433.619 23.0 5.9 304,130 16.0 -29.9
II. No Trade
6,049 0.4 6.005 0.3 -0.7 5,408 0.3 -9.9
GDP at constant prices 1,488,921 100 1.887.451 100 26.8 1,897,427 100 0.5

10
http://www.insidejustice.com/law/index.php/intl/2005/12/21/dr_congo_new_constitution
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11 | P a g e
As shown in Table 2, only the mining sector has shown real GDP growth and contributed to the
overall growth of the provinces GDP in 2007 and 2008. The increase is mainly due to the
provinces exports activity, which benefited from a boom in the prices of cobalt and copper. In
contrast, agriculture showed poor performance during the same period despite the dramatic
increase in international food priceswhich is further evidence of a lack of response capacity in
the sector.
Explaining Crowtb Collapse
From tbe end of Ccamines to tbe Congo wars
Katangas industrial concentration around copper and cobalt mining happens along the copper
belt, stretching from south of Lubumbashi to Likasi and further west to Kolwezi. This
geological concentration in uranified minerals in the southern parts of the province lying at the
border with Zambia has created a hub of economic activity and private investments.
As a market entity, Gcamines was never very competitive nor was mining was profitable, even
though the mineral ores in Katanga are known for their reportedly high concentration. In
addition, mismanagement and government interventionism played a negative role in the
governance of Gcamines. Remoteness and high operational costs contributed to making the
mining industry in Katanga even more sensitive to price volatility. As described in the national
growth diagnostics study, Katanga experienced successive crises, following volatility in the
prices of copper and cobalt. Such was the case in 1975 as copper prices dropped 40 percent in
one year, and again in 1981 as copper prices declined by 45 percent, and again in 1986 as cobalt
prices plunged by 58 percent.
Capital obsolescence, poor management and planning and a total lack of investment eroded
Gcamines productivity and its actual capacity to operate. In 1990, the Kamoto mine, the most
important cobalt mine in the country located in Kolwezi physically collapsed. With copper
prices then at record low levels, cobalt was Gcamines most profitable exports. Gcamines never
since recovered, even when cobalt prices rose again in 1992. Gcamines was unable to increase
production.
From 1988 to 1995, copper production had dropped by 90 percent. By 1995 copper production
was at 34,000 metric tons, down from the 1985 peak of 500,000 metric tons (see Figure 2). Zinc
production, a by-product of copper mining, was down to only 4 percent of its 1988 level, and
stopped altogether in 1999. Cobalt production was stable from 1988 to 1990 until the Kamoto
mine collapsed. However, but despite sharp increases in cobalt prices in 1991, production came
down in 1993 to 20 percent its 1988 levels During this period, Gcamines exports dropped
from 60 percent of DRC exports to less than 20 percent.
11
Mining as a share of GDP was
reduced from 11.3 percent to 4.7 percent, as seen in Table 3. These events had profound
economic and political impact at the national level; their implications for the economy of the
Katanga region were simply catastrophic.

11
In 1989, Gcamines made up for 85 percent of DR Congo's export earnings (against 60 percent provided by the
UMHK in 1960), and 42 percent of public revenues, making it by far the most important company in the country.
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12 | P a g e

Figure 2 Gcamines exports of copper, cobalt and zinc (index 1988=100) (left axis) and
export value/total exports (right axis)


Firstlyand most directly, since most economic activity in the province was related to mining,
Gcamines collapse was devastating for the province. Gcamines directly employed over
37,500 people in 1988; by 1995, it had only 27.000 people on its payroll. This was a huge shock
for the local economy, as the wages earned dropped from US$ 172 million in 1988 to only US$
79 million in 1995.
12
The social impact of the collapse both at provincial and national level
trigged a series of events leading to the 1991, 1992 and 1993 lootings that caused further severe
damage in Katanga.
Secondly, Gcamines had been the main provider of education, health services, and other social
benefits to the province. Both in remote areas and in the main urban centers, Gcamines was in
effect the incarnation of the State in Katanga. Thus, the fall of Gcamines meant a decrease in
direct wages but also in all Government services for thousands of Congolese who were directly
or indirectly connected to Gcamines and the mining economy.
Thirdly, without the capacity to adjust exports tariffs to high inflation rates, without goods to
move and without foreign currency to acquire new exploration machinery, the infrastructure
systems (rail and river, mainly) came to a virtual standstill. Total cargo in 1995 was about 10
percent of the levels in 1988 (Table 3).

12
IMF, 1995.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
0
20
40
60
80
100
120
1988 1989 1990 1991 1992 1993 1994
Export value/Total Expots Copper Cobalt Zinc
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13 | P a g e
Fourthly, the indirect impact of the Gcamines crisis caused damages that are still being felt
today in particular in Northern Katanga. As throughout the DRC, the transportation system in
the province included rail and river networks plus a large number of feeder roads. Roads played
a secondary role, and depended largely on rail and river transport for access to markets. The
demise of ONATRA, which operated the cargo and passenger freight on the Lualuaba River, and
on Lakes Mweru and Tanganyika, combined with the collapse of the main railway para-statal
SNCC, which operated the extensive railway system in the province, amplified the impact of the
degradation of the infrastructure on the rest of the economy. For instance, since no other
company could replace the public rail company, the vast agricultural areas in the north of the
province (from the city Manono up to the border with the provinces of Maniema and South
Kivu) were entirely cut-off from trade and the main markets. The consequences are still visible
today in places like the districts of North Katanga and Lualaba, where agriculture was
abandoned.
Table 3 DRC mining and transport sector, key statistics (1988-1994)
1988 1989 1990 1991 1992 1993 1994
Gcamines production (thousand metric tons)
Copper 468.4 442.8 355.7 236.1 147.3 48.3 33.6
Cobalt 10 9.3 10 8.6 6.4 2.2 3.6
Zinc 61.1 54 38.2 28.3 18.8 4.2 2.5
Mining sector (including all mining production)
Annual changes in percent -7.5 -3.6 -15 -22.8 -36.3 -17 -25.4
In percent of GDP 11.3 11.1 10 8.5 6 5.8 4.7
ONATRA 900 857 754 412 193 124 95
SNCC 1,701 1,659 1,340 815 448 169 193
GDP and exports
GDP growth rate ( percent) 0.5 -1.4 -6.6 -8.4 -10.5 -14.5 -7.2
Total exports (US million) 2,202 2,131 1,631 1,288 1,144 1,271 1,451
Gcamines exports (US
million)
1.389 1.265 896 535 232 176 295
Gcamines/Total exports (
percent)
63.1 59.4 54.9 41.5 20.3 13.8 20.3

Fifthly, Katanga was also deeply affected by the wars in the rest of the DRC. During the First
War, Laurent Desiree Kabila took Lubumbashi when he led his troops into Katanga from South
Kivu and then via Kasenga (south of Lake Mweru.) During the Second War, rebels moved south
from the Kivus and the province of Maniema and entered in Katanga, occupying key posts such
as the port of Kalemie (on Lake Tanganyika), Pweto (near Lake Mweru) and large cities like
Manono. The city of Manono is representative of many post-mining towns in Katanga.
Formerly a tin mining center of international significance, Manono is today a ghost town. It
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14 | P a g e
suffered firstly from the collapse of Gcamines, and secondly from being occupied by rebel
armies. It has lost its role in any sizeable mining exploitation; its population has either left or
taken up subsistence farming. Poverty in Manono is at a staggering 90 percent, almost twice the
poverty level in other productive mining cities (see Poverty profile.)

During the conflict years, Gcamines did not receive any new capital investment. In 2005,
copper production was at 26,000 metric tons, or only 6 percent of its 1988 levels (Figure 3)
In contrast, cobalt mining began recovering in 2000, with production surpassing its 1988 levels
in 2001. In 2006, Congo reclaimed its position as a top producer and exporter of cobalt with
nearly 40 percent of the world cobalt market with a production of 22,000 metric tons.
13

Figure 3 Exports of copper, cobalt and zinc (index 1988=100)
(left axis) and export value/total exports (right axis)

*Data reports total exports of copper, cobalt and zinc, including Gcamines joint ventures.
The recovery in cobalt mining and new investments in the exploration and exploitation of copper
projects pushed up Katangas GDP per capita from US$138 in 1997 to US$150 in 2009 (the
highest in the country after Kinshasa.) The recovery also contributed to reviving the cluster of
economic activities around mining, by boosting demand for labor and investments, especially for
the services industry. In 2008, services, including hotels, transportation, and financial and other
services accounted for up to 50 percent of the private investments in Katanga (Figure 3
14
). The
mining sector again attracted large amounts of foreign and domestic investments for key
infrastructure projects in transport and energy. The supply of labor responded to increased

13
Source: US Geological Survey, Mineral Commodities Summary, Jan 2007.
14
ANAPI (2008).
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
20
40
60
80
100
120
140
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Export value/Total Expots Copper Cobalt Zinc
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15 | P a g e
demand, and the sector benefited from the presence of a skilled labor force (made up mostly of
former Gcamines civil servants.)

Table 4 Katanga: Private investment by Sector (2008)
Sector 000 USD
% of Total Private
Investment*
Mining-related Infrastructure 67,314 18.8
Air Transport 57,771 16.2
Electricity 47,170 13.2
Other Services 39,635 11.1
Hotels 36,155 10.1
Financial Services 34,146 9.6
Manufacture 33,169 9.3
Food Processing 24,446 6.8
Road transport 16,276 4.6
Telecommunications 1,433 0.4
Total 357,519 100
Source: ANAPI*Includes ongoing and completed projects.

While Katangas copper belt may enjoy the lowest poverty head-count in the province, the
demise of the mining industry has had profound consequences. As electricity, schools and
hospitals were previously provided by private companiesfirst, by the monopolistic Gcamines,
and later by other mining operatorsthe collapse of the mining industry has left behind blighted
inner cities (or cits) all around Kolwezi
15
and Manono, with thousands now lacking job
security and income, and also public services and infrastructure.
Most recently, Katangas economy has been hard hit by the effects of the global financial crisis.
Several investors have suspended their activities and new investments, and an estimated forty
firms have left the province altogether, reportedly practically overnight. Lay-offs in the mining
sector have affected over 300.000 people
16
. The province now has to make up for large amounts
of lost revenues in foreign currency and taxes.

15
The authors visited the inner cities around Kolwezi where social services and infrastructure are in a dismal state.
16
Interviews by the authors, Lubumbashi, 5-9 August 2009.
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16 | P a g e
Katanga A Dual Economy
Katangas economy is today characterized by a stark duality between mining and agriculture that
has created imbalances in the development of the province, with a more affluent southern
copper belt and poorer western and northern agro-pastoral regions.
Table 5 Katanga: Production (millions of current US$)
2006 2007 2008
Primary sector 2932.17 4791.03 5441.36
Agriculture, Fishing and Livestock 1947.12 1490.29 1784.90
Forestry 17.99 15.88 14.75
Mining 967.06 3284.85 3641.71
Secondary sector 1130.42 1739.04 2313.34
Industry 909.03 1511.59 1211.75
Electricity 195.41 202.07 169.49
Water 14.67 13.00 10.71
Construction and public works 11.31 12.38 10.27
Tertiary sector 1960.86 2199.74 1677.96
Market services 1947.94 2183.74 1658.12
Non-market services 12.92 16.00 19.84
Source: World Bank 2009

Table 6 Katanga: Private Investment by Location and Sector (2008)
Sector Location
Total Investment*
(USD)
Air Transport Lubumbashi 57,771,982
Road transport Lubumbashi 16,276,423
Electricity Nseke 47,170,065
Hotels Lubumbashi 33,966,502
Kolwezi 2,189,004
Financial Services Lubumbashi 34,146,291
Telecommunications Lubumbashi 1,433,274
Other Services Lubumbashi 15,651,811
Lubumbashi and Kolwezi 23,984,042
Manufacture Lubumbashi and Kolwezi 2,677,562
Lubumbashi 30,491,503
Food Processing Lubumbashi 22,086,127
Kalemie 2,359,955
Infrastructure (Mining) Lubumbashi 64,013,467
Kolwezi 3,301,259
Source: ANAPI
*Ongoing and completed projects.

The overwhelming concentration of the economy in one sectorand in one geographical area
bears important consequences for Katanga and its future. Consider for example infrastructure:
the only paved roads in the province go from Kolwezi to the transit town of Kasumbalesa at the
border with Zambia, where the mining exports exit the DRC. Electricity provision is
concentrated in the mining cities, and primary school enrollment is notably higher in mining
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17 | P a g e
regions, creating a gap with non-mining territories. Except for a small project in Kalemie
once a vital port and gateway on the shores of Lake Tanganyikaall investment projects in the
province are concentrated in the copper-belt and related to mining. Agriculture has yet to be
seen as an attractive investment in Katanga, which has implications for poverty reduction and the
balance of political power in the provinces economy, as well as for food security.
The production of traditional staple foods and cash crops in Katanga has decreased or remained
stagnant since 1986
17
. By 1995, the majority of all crops were being consumed within the
region, leaving little surpluses for exports. The lack of connectivity of the agricultural districts
restricted the demand for new intrants, and access to arkets and technologies. Ninety percent of
farmers in the northern part of the province use seeds of lower quality found on the local
markets, through the informal distribution channels
18
. Katanga today depends on imports from
Zambia, Zimbabwe and South Africa
19
. According to the FAO, the percent of Katangas
population is under high risk of food shortages. This places Katanga second after South Kivu in
terms of provincial populations at risk
20
. With a population projected to double over the next 20
years, Katanga faces heightened food security risks, at the time when agricultural production
remains at its 1980s levels.

Table 7 DRC: Agricultural Production (1986-2006)

Katanga
production as
percent of total
National
2004
Rank of
Katanga in
terms of
production
2004
Total National Production (000s tons)
Katanga
Internal food
balance (
percent)
1995
21
*
1986 1991 1994 2002 2006
Cassava
15 2 16,300 18,715 18,890 15,698 14,989 2.63
Maize
26 1 800 1,022 1,184 1,210 1,156 -0.71
Palm oil
3 8 101 20 19 6 - -1.31
Groundnuts
16 3 - - 400 355 369 5.57
Source: WB, Monographie de la Province du Katanga, BCC

Katangas dual economy is its most urgent issue in terms of development and poverty reduction.
Failure to balance growth and attract investment into the agricultural areas will perpetuate the
cycle of poverty in rural areas, which are deprived of income and basic public goods.

17
No natural or external shocks are to blame.
18
Monographie de la Province du Katanga.
19
Monographie de la Province du Katanga.
20
FAO. 2009(2009)
21
The Internal food balance measures the difference between the provinces consumption and production as a
percent of the total production. The food balance gives an idea of the surplus the farmers have to
export/commercialize outside of the Province. It is an indicator of the subsistence agriculture.
109
18 | P a g e
Poverty Profile
According to the 1-2-3 survey
22
, over two thirds of the population in Katanga is below the
poverty line, and its poverty rate at 69.1 percent is slightly below the average of 71.3 percent.
Figure 4 shows that using three different poverty measuresheadcount ratio, poverty gap and
squared poverty gapKatangas poverty level is about the same as the national average. While
the poverty gap is informative about the average distance of the poor population from the
poverty line, the squared poverty gap takes into account the intensity of poverty.
Figure 4 Poverty Levels
67.1
32.8
19.0
70.2
32.4
18.1
poverty headcount (%) poverty gap (%) squared poverty gap (%)
urban rural

Source: DRC Poverty Diagnostic 2006

Within Katanga, the percentage of the population living in poverty is even among rural and
urban areas, although two thirds of the population is located in rural areas (Figure 4) Thus,
understanding and promoting social development in rural areas is a key component to poverty
strategies.

Looking at the data from the perspective of Katangas dependency on mining, we observe
significant differences in poverty between mining and agricultural areas (Figure 5). Manono, a
former mining town with no significant operations today, was heavily affected by the 10 years
war in the country. Manono counts 98.8 percent of its population under the poverty line while

22
110
19 | P a g e
Lubumbashi counts (only) 62 percent. Dilolo and Kamina, two agricultural towns, have higher
poverty rates. Looking at poverty levels by type of jobs, the result is the same. Poverty is
concentrated among agricultural workers (74.6 percent). Both the extensive and intensive
margins of poverty are high. In other words, not only is poverty higher among agricultural
workers, but most of the population in Katanga works in this sector (71.4 percent).
Figure 5 Mining and Agricultural Poverty Levels ( percent)
80.3%
66.2%
71.7%
62.4%
98.8%
Dilolo Kamina Kolwesi Lubumbashi Manono
%Poverty Katanga average (69.6)
M

Source: Authors calculations based on Enqute 1-2-3 (2004-2005)

The wide heterogeneity and inequality between mining and agriculture within Katanga is one of
the greatest challenges for poverty reduction. The relatively higher level of poverty observed in
agricultural areas could have long-lasting implications for development in the province if the
educational gap among the younger population is not reduced. Figure 6shows another revealing
socio-economic dynamic: second only to informal agriculture, 68 percent of the heads of
households in the public administration or working for public enterprises (72 percent) are poor.
In the context of Katanga, these statistics reflect the impact of Gcamines collapse, which had
long been the sole provider of social benefits for its employees and their families. Still, it is in
the informal agriculture that poverty is most important, both because of the intensity (75 percent)
and because of the large population in the sector.

111
20 | P a g e
Figure 6 Head of household poverty levels by type of job
0%
10%
20%
30%
40%
50%
60%
70%
80%
P
o
v
e
r
t
y

r
a
t
e

Source: UNDP (2009)
Agricultural areas are also lagging behind in terms of social indicators. Figure 7 shows a
significant gap in school enrollment of children between six and eleven years old in mining
versus agriculture areas. This is influenced both by low demand for education and lack of
educational services in rural areas.

Figure 7 Mining and Agricultural Schooling Rates
45%
43%
73%
75%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
net scholarization rate for 6-11 yr [Katanga Average]
Mining

Poverty and Education
The dichotomy between mining and non-mining zones has been a long-standing phenomenon, as
shown in Figure 8. Differences have persisted for more than sixty years, and the gap is present
for all cohorts. Differences in schooling between mining and non-mining zones are larger for
112
21 | P a g e
younger people (the 21-25 year old), which suggest that the gap is increasing over time, perhaps
more so after secondary school. With lower enrollment rates and high dropouts, rural Katanga
will continue to lag behind in measures of human capital.
Figure 8 Mining and non-mining zones and years of education
0
1
2
3
4
5
6
7
8
9
5
-
1
0
1
1
-
1
5
1
6
-
2
0
2
1
-
2
5
2
6
-
3
0
3
1
-
3
5
3
6
-
4
0
4
1
-
4
5
4
6
-
5
0
5
1
-
5
5
5
6
-
6
0
6
1
-
6
5
>
6
5
A
v
e
r
a
g
e

s
c
h
o
o
l
i
n
g

y
e
a
r
s
Mining zone
Agriculture zone
Mining zone
Agriculture zone
Mining zone
Agriculture zone
Age


Rural Katanga is experiencing a poverty trap, where high opportunity costs for schooling
lead to continued and exacerbated levels of poverty. Poverty is higher in non-mining zones and
not only do rural areas experience a higher opportunity cost for sending children to school than
urban areas, but rural areas also suffer from a lack of access to education at all levels. Children
living farther from schools naturally have more difficulty attending. Figure 9 shows that
physical distance to school explains the dichotomy in education that has developed between
agricultural and mining populations, demonstrating that growth alone cannot be enough to break
the cycle of poverty. Social policy is thus a necessary complement to growth. Creating better
access to schoolinglowering the opportunity cost of sending children to schoolcombined
with targeted growth strategies in the agricultural sector will help reduce poverty and will narrow
the gap between rural and urban populations in Katanga.

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22 | P a g e
Figure 9 Distance to School / Mining and Agricultural Zones
0
2
4
6
8
10
12
14
16
18
20
Public primary
school
Private primary
schools
Public secondary
school
Private secondary
schools
D
i
s
t
a
n
c
e

[
k
m
]
Mining Agricultural


The lack of adequate infrastructure is not exclusive to education in Katanga. Health services are
also lagging behind. In Katanga, 10,702 people are served by each health center, compared to
the national average of 9,594.
23
Further, only 25 percent of children aged between 12-23 months
in Katanga are vaccinated against all childhood diseases compared to the national average of
30.6, and 28.1 percent of children 12-23 months old have received no vaccinations at all,
compared to the national average of 17.6 percent.
24

In conclusion, the most discriminating dimension in terms of poverty in Katanga is not rural vs.
urban but mining vs. agricultural. Poverty is higher in the agricultural sector and access to health
and educational services is severely constrained. Stronger growth and economic performance,
though necessary, will not be sufficient to break the trap of poverty in the long-term. Delivering
better access to social services is an imperative for the provinces advancement.

23
DRC Ministry of Health (DRC, PER, 2007)

24
Enqute Dmographique et de Sant (EDS, RDC 2007)
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23 | P a g e
Applying the HRV framework, the study will explore the relative scarcity of different factors and
the potential constraints they might constitute for growth and the marginal investment project
defined as a project that would be taken on if the most binding constraint could be removed. The
chapters below will discuss whether it is lack of access to finance, inadequate social returns on
investment or problems appropriating the fruits of investments that constitute the most binding
constraint on growth in Katanga Province.
3.1. Is access to finance the binding constraint?
3.1.1. Is it lack of international financing?
Katanga has been the most successful province in the DRC at attracting international finance,
albeit uniquely concentrated in the mining sector. Gcamines concluded 38 public-private
partnerships and some very large projects are already operational. In recent years, the province
has also pursued new financing avenues, turning to regional development banks like the
Development Bank of South Africa (DBSA), institutions and private investors from the Gauteng
province.
25

In the aftermath of the global financial crisis, mining companiesparticularly the juniors who
rely on equity financing as their principal means of funding explorationare reporting difficulty
in raising any significant amount of new capital. As a number of executives of mining firms
have noted, the global financial crisis has resulted in large investorsthe majors with the
financial capability to acquire and develop a major mine on their ownputting off plans to
increase their portfolios of operating, expansion and growth projects in the copper/cobalt
industry in Katanga. Amongst the juniors, only a handful is still able to continue with their
operating plans; most have suspended their operations.

Lack of international finance may represent a serious constraint to investment in the specific
sector of mining Katanga, if the global financial crisis should deepen. Challenges in mobilizing
international finance, however, are exacerbated by problems of appropriability, as the paper will
discuss further below
26
.
Is it lach of domestic financing or poor intermediation
The domestic banking sector in the DRC, still recuperating from the financial and banking
meltdown in the aftermath of the Zarinisation and the economic turmoil of the mid-1970s, is
unable to mobilize large sums of money and has played only a minor role in the recent take-off
of the mining sector. As noted above, mining projects were traditionally financed with foreign
capital and have therefore not been constrained by lack of local financing, or at least not until the
recent financial crisis left the mining sector looking for new sources of finance.

25
Interviews with his H.E. the Consul of South Africa to Katanga. Lubumbashi, DRC. 6 August 2009. Interviews
and round-table discussion with South African investors. Lubumbashi, DRC. 6August 2009.
26
Interviews by the authors. Kinshasa, DRC. 30 October 2009. Also, interview by the authors. Washington, DC. 10
December 2009.
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24 | P a g e
In and around Lubumbashi, several banks and micro-credit banks are present, and the provision
of financial services and intermediation in Katanga resembles conditions elsewhere in DRC. In
contrast to Lubumbashi though, the rest of Katanga and in particular the non-mining areas have a
very different finance landscape, as the majority of businesses are informal and do not have, and
never have had, access to formal financing.
The lack of formal and long-term credit directly affects the quality and supply of equipment used
in both agricultural and non-agricultural enterprises, further constraining the capacity of firms to
expand production, increase efficiency and to export. Pre-planting financing mechanisms
available in the past (for example, for cotton) have since ceased to exist, leaving the agricultural
sector deprived of any form of credit.
Katanga has the second highest proportion (albeit small in absolute terms) of households with
working capital, after Sud Kivu (see Table 8). Only 4 percent of households report having
access to credit for working capitala very low figure given the role of agriculture as an income
generating activity. This credit most usually serves to finance production, and the most common
source is the famous tontines (or likelembas
27
.)

Table 8 Congo: Access to credit for working capital

percent of
Households with
access to credit
for working
capital
Purpose Source
Production Operation Equipment
Commercial
Bank ONG
Parents/
Friends Tontine
Bandundu 0.2 100 0 0 0 100 0 0
Orientale 1.9 61.7 22.2 0 2.2 0 1.3 16.6
Nord Kivu 1.3 24.3 1.6 0.5 0.5 15.6 1 5.4
Sud Kivu 6.5 25.1 31.2 5.2 3.9 0 3.5 0
Katanga 4.1 27.7 1.6 4.8 1.9 6 2.5 14.1
Kasa
Oriental 0.7 91.1 0 0 0 0 0.7 0
Kasa
Occidental 3.1 0 4.9 0 15.5 21.8 0.2 40.5
Source: Enqute 1-2-3 (2004-2005)

Granted, informal finance can only provide limited sums of capital. With scarce finance, farmers
and non-agriculture small firms are unable to invest in the inputs needed to boost productivity.
This decline in productivity is illustrated in the decline in agriculture output for staple crops,
such as cassava, maize, and manioc (see Table 5).

27
More than loans, tontines are a rotating savings system. An equal amount of money is distributed each period
(week or month), free of interest. Social collateral and the risk of being banned from the system are the only
guarantees. The members of the tontine meet (weekly or monthly) and pay in a certain sum of money agreed
upfront. The amount collected is then given to one member that rotates each period. The process repeats until each
member receives in lump sums the equivalent to his total payments.
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25 | P a g e
Suvlngx unJ lnformul networhx of flnunce
Katanga shows the highest proportion of self-owned resources and family finance, indicating
availability of domestic savings. In fact Katangas population saves more, compared to the rest
of the country, second only to Kinshasa (see Table 9). Family savings, and systems known as
tontines, family-/community-owned funds, play an important role, with 32.8 percent of
operating capital for non-agricultural family businesses in Katanga coming from family savings,
and 6.7 coming from tontines, while only 0.7 percent comes from formal financial institutions
(see Table 10). These funds, however, are not able to finance the long-term investments needed
in agriculture, or provide the large lump sums needed in mining.

Table 9 DRC: Short-term vs. long-term deposits, 2007 (000 CDF)

Sight Deposits Term Deposits

2005 2004
Kinshasa
120,044 19,947
Bas Congo
4,946 18
Bandundu
98 0,3
Equateur
98 0,4
Orientale
533 n,a,
Kivu
9,479 220
Katanga
16,067 79
Kasa Oriental
1,242 5
Kasa Occidental
539 5
Source: BCC (2007)

Table 10 Katanga: Financial situation of non-agricultural family enterprises

Initial Capital
(000 CDF)
Source

Financial
Institution Family Own Tontine
Bandundu 5.663 2.2% 16.7% 31.4% 1.5%
Orientale 2.626 2.4% 29.3% 34.4% 10.5%
Nord Kivu 4.713 0.0% 18.2% 45.3% 4.0%
Sud Kivu 9.231 2.9% 19.9% 47.8% 1.3%
Katanga 5.928 0.7% 32.8% 40.8% 6.7%
Kasa Oriental 11.154 0.0% 23.3% 43.9% 5.5%
Kasa Occidental 13.598 4.4% 22.6% 45.9% 0.5%
Source: Enqute 1-2-3 (2004-2005)

Summary
Access to finance represents a constraint in Katanga. This is manifested in the non-mining sector
(mainly agriculture as the share of services in the economy is marginal) by the preeminence of
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26 | P a g e
informality, the high dependency on domestic finance and on self-owned/family savings.
Structural factors help explain the root causes of this constraint, such as the informal nature of
most enterprises, the low productivity in the agriculture sector and the low intermediating role of
banks.

In the mining industry, foreign firms have traditionally fully financed their investments, through
self-financed capital or borrowing on the international markets. Foreign investors report that
mobilizing finance for investments in the DRC has become increasingly difficult, as potential
sources of international finance for mining projects have dried up in the wake of the global
financial crisis. Overall, however, the challenges faced by the mining industry appear to be more
structural than financial, such as concerns over expropriation and current uncertainties of the
business climate, particularly as regards mining contracts and concession
28
.
3.2. Is it lach of social returns to economic activity
Is It Ceograpby
Katanga borders Angola and Zambia to the south, Tanzania (with the border within Lake
Tanganyika) and Burundi to the east, South Kivu to the north and the two Kasas to the west.
Katanga is connected to major trading corridors, most of which have today fallen into disrepair.
Katanga boasts some of the worlds largest deposits of copper and cobalt, along with deposits of
columbite, tin, tantalite, uranium and zinc, making it one of DRCs richest provinces in terms of
natural resource endowments.
Endowed with rich soils and abundant river irrigation, Katanga was once the bread-basket of
the Congo, exporting agricultural products, such as cotton, palm oil and tobacco. Today, the
agriculture-rich areas lying far from the main cities and international borders of the province are
mainly landlocked due to the dilapidated infrastructure network. Transportation is mainly done
by road and railway, and navigation on the waterways is difficult with only a section of the
Lualaba River navigable today.
Since the economic question being asked is why growth collapsed, and why production has
ceased, geography and distance to the sea cannot be seen as a binding constraint. As a constant,
geography could only be used to explain why these did not occur in the first place, and given
Katangas previously productive industries, especially mining, geography is seen as an
advantage, while constraints lie elsewhere.
Is infrastructure tbe binding constraint
Transportation infrastructure in Katanga is in ruins: roads degraded, railroads abandoned, bridges
old and waterways practically impassible and airport equipment deficient.
29
At one time,
however, Katanga had a functioning infrastructure network that connected the province with the
rest of country and its neighbors. Goods were transported through an extensive rail and river

28
29
IMF. 2006. Poverty Reduction Strategy Paper.

118
27 | P a g e
system, connected to feeder roads. The road axis Lubumbashi-Kasumbalesa to Durban via
Zambia remains the busiest trade gate for Katangas goods and for a majority of Katangas
mining exports.
Rullwuyx
The rail network was once the vital means of transport route for Katanga, and it is today its
weakest link. The rail system provided Katanga a strategic three-axis system that connected the
provinces east, north and west with the rest of the DRC. Southern Katanga was connected to
Kinshasa and to the world through a 3-part, nearly 2600 kilometer route via the Voie Nationale
that linked Lubumbashi to Ilebo in the Kasa Province
30
by train (1,575 km), Ilebo to Kinshasa
via the Kasa and Congo Rivers (650 km), and Kinshasa to Matadi by rail (366 km.)
Figure 5.6: DRC: Diagrammatic Map of Transport

The system could transport up to 650,000 metrics tons per year. The agricultural districts of
Haut-Katanga and Tanganyika in the south, formerly the granary of the province, were
connected to Kinshasa via rail to Kabalo-Kindu (406 km), river to Kindu-Ubundu, rail again
Ubundu-Kisangani, Kisangani-Kinshasa by the Congo River (1,000 km) and finally Kinshasa-
Matadi by rail. The two previous networks where joined in Kamina, connecting via Kabalo by
rail to the lake port of Kalemie (720 km), from which Lake Tanganyika connects it with the
Kivus, Burundi, and Tanzania.

30
Ilebo, formerly known as Port-Francqui, is a town in the Kasai Province, lying at the highest navigable point of
the Kasai River. As such, it has been an important transport hub for ferries to Kinshasa and trains to Lubumbashi.
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28 | P a g e
Similarly, three lines connected Katanga to the oceans. To the Atlantic Ocean, the Benguela
railway provided access to the Atlantic Ocean via the port of Lobito, linking the main mining
cities of Kolwezi, Likasi and Lubumbashi, as well as Zambia. The last stop in the DRC was the
city of Dilolo. To the Indian Ocean, the Zambia railway connected Lubumbashi to Sakania (on
DRCs border to Zambia) with Ndola (Zambia) and the port of Beira (Mozambique). The same
line was connected to South Africa. Finally, also to the Indian Ocean, the Tanzania-Zambia
railway provided access to the Tanzanian port of Dar es Salaam.
Following the collapse of ONATRA and SNCC, the river and rail transport system disintegrated,
leaving Katanga disconnected from the rest of the country and the large agricultural areas of the
province (Haunt-Katanga and Tanganyka districts) completely autarkic. The port of Durban in
South Africa, reachable by road from Lubumbashi is the only accessible and reliable option for
exporters. Without a viable rail-river transit system, the non-mining areas in Katanga are
constrained by the absence of transport infrastructure.
RouJx
Roads formerly played only a secondary role in Katangas cargo transportation network, and
served mainly as feeder roads into the rail-river system. Katanga has 31,670 km of roads of
which 25,385 km are dirt roads, most of which are impassible.
31
Feeder road maintenance was
linked to agricultural exports, which have since collapsed along with the demise of the rail-river
system and the agricultural economy.
The provinces road infrastructure capacity is below what its income levels would suggest. This
may be explained by the duality of Katangas economy: opportunities and economic activity as
well as infrastructure are concentrated in the mining-producing areas whereas higher poverty is
concentrated in the landlocked agricultural regions.
Although the province is the second most developed in the DRC in terms of GDP per capita, 1 in
4 people lives more than 5 km from a market, compared to the national average of more than 1 in
5. Similarly, more than half the population (54 percent) lives within 10 km of a hospital, while
nationwide that number is 73.5 percent (Table 11).

Table 11 Katanga: Households with access to infrastructure at a reasonable distance

Market less
than 5km away
Sanitary Center less
than 2km away
Hospital less
than 10km
away
Kinshasa 98.6 99.6 99.6
Bandundu 58.5 50.9 51.3
Orientale 71.5 68.4 52.4
Nord Kivu 84.2 86.6 75.6
Sud Kivu 88.8 85.7 70.1

31
The 200-km of road between the lake port of Pweto and Lubumbashi is a week-long journey.
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29 | P a g e
Katanga 74.1 63.9 53.9
Kasa Oriental 90.7 95.6 85.2
Kasa Occidental 95.2 84.7 100
Source: Enqute 1-2-3 (2004-2005)

The most disconnected areas in Katanga include the districts of Tanganyka, Lualaba, and Haut-
Lomami. These three, plus the district of Haut-Katanga (where the large mining projects are
concentrated) will become autonomous provinces according to the new 2005 Constitution. Once
Katanga is divided under this configuration, the negative impact from the lack of infrastructure
will be exacerbated as other than Haut-Katanga, the other provinces will be able to mobilize only
marginal resources. We consider infrastructure to be Katangas most binding constraint to
growth and to poverty reduction. Lack of connectivity condemns the vast rural areas to self-
subsistence and reinforces the province dependency on mining.
The only paved roads usable year-round are those along the 320 km from Kolwezi to
Lubumbashi and the 100 km from Lubumbashi to Kasumbalesa. The latter stretch is the gateway
for mining exports from the Katanga to Durban via Kasumbalesa. The provincial government
has given priority to infrastructure rehabilitation projects, with 55 percent of the provincial
budget in 2009 allocated to infrastructure, up from 49 percent in 2008
32
. The provincial
government was thus able to self-finance the rehabilitation of the road linking Lubumbashi and
Kasumbalesa, a vital artery for mining and trade exports. The province is also working to
rehabilitate the road from Kolwezi-Kayembe-Mutshatsha, another vital link for mining exports to
Angola via Dilolo
33
.
Transit networks are most dense in mining areas, leaving agricultural areas relatively isolated.
While mining is concentrated around the copper-belt (with some mining activities in coltan and
tin around Manono in central Katanga), agriculture is scattered in the districts of Tanganyka,
Haut-Lomami and Lualaba. The copper-belt is highly connected, whereas the agricultural
regions are under-served and isolated, depending on obsolete infrastructure links to Kalemie on
Lake Tanganyika.
Even if mining appears to be unconstrained and is well serviced by the road connection to
Durban, this is only viable in the short-run because the Province is producing at about one-tenth
of its past capacity. Katangas low competitiveness has exacerbated the impact of exogenous
price shocks. Creating alternative and more efficient export routes would benefit the mining
industry in the short-term, as well as reduce the provinces vulnerability to exogenous price
volatility.
We consider the evidence available as supportive of the argument that transport infrastructure is
the most binding constraint in the province. Katanga needs a multimodal system combining

32
Interviews by the authors, Lubumbashi, DRC. 5-9 August 2009. Also Katanga: Contre Vents et Mares, Le
Katanga maintient le cap. 2008-2009.
33
Entirely self-financed with revenues from the toll fees on the road, the road rehabilitation project cost $136M
Source: Katanga: Contre Vents et Mares, Le Katanga maintient le cap. 2008-2009.
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30 | P a g e
river, rail and road transportation in order for the investments in the province (outside mining) to
be profitable.

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31 | P a g e

Box 1: Un-locking Agriculture and Trade
Once a large economic hub, the port of Kalemie on the west bank of Lake Tanganyika is today operating at much
reduced capacity, mainly because of the build-up of sand banks at the entry of the port. Furthermore, the drop in
the water level has made access difficult for large-tonnage tankers and ferries (over 4000 T). Of the five cranes,
only one is still operating.
Through the diagrammatic representation of infrastructure in Katanga, we may look at three donors interventions,
and their anticipated impact on unlocking agriculture in northern Katanga.
The Coopration Technique Belge will finance a one-half million Euro rehabilitation of the port of Kalemie
1
. The
project to begin in September 2009 will contribute to dredge up the port, remove the bank sands, rehabilitate the
facilities and equipment and restore river traffic for the heaviest barges up to 4000T
2
, removing current bottlenecks
to trade in the region.
China has committed to rehabilitate the Lubumbashi-Kalemie corridor, and to help alleviate some of the current
constraints in agriculture and pisci-culture. The project will also provide alternative evacuation and trade routes to
the mining companiesby providing access to Lakes Mweru and Tanganyika.
The concentration of the OECD projects in the copper-belt area will reach out to the western border of Katanga, to
connect it to Mbuji-Mayi in Kasa Oriental. The project may therefore have less direct impact and connectivity to
the most potentially productive agriculture areas around northern Katanga. The project will have no significant
and immediate impact on the mining sector.
Lastly, rehabilitating the Kalemie-Kabalo and the Kabalo-Kamina railway lines (see map of Province) would
further connect central Katanga to the other main cities, to the Kasa and neighboring countries to the east of the
Congo.
In an environment of scarcity of infrastructure (in the HRV perspective), donors interventions to
rehabilitate the port of Kalemie and repair the infrastructure links (rail and roads) to northern Katanga
(see Figure 5.3: DRC: Spatial distribution of OECD and Chinas financed road projects) may have more real
leverage to unlock the North, connect the provinces dual and separate economies, and open up trade
within and outside the province.
________
1
Coopration Technique Belge. 2009. RDC: Appui au dsensablement du port de Kalemie.
2
Coopration Technique Belge. 2009. RDC: Appui au dsensablement du port de Kalemie.

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32 | P a g e
Figure 10 DRC: Spatial distribution of OECD and Chinas financed road projects

Source: Prioritizing Infrastructure Structure Investments: a Spatial Approach
Flectrlclty
Katanga has large hydropower potential that could cover the demand for the entire country. The
province is endowed with abundant rivers, waterfalls and rapids. However, that potential is
poorly developed, and less than 4 percent of the population has access to electricity
34
.
The electricity network in Katanga dates back to the colonial period, its most recently built
hydro-electric plant, in Nseke, built in 1956. Figure 10 shows the location, construction year and
production of the interconnected hydroelectric network, serving the mining cities in Katanga.
The Nseke plant is being rehabilitated through a joint public-private partnership with the mining
sector.
35
Most of the large mining projects in the province (all former Gcamines facilities) are
connected to Inga and independent from the local network. But the local network is a barrier for
growth for all other sectors.

34
NEPAD Business Foundation, 2007.
35
Katanga: Contre Vents et Mares, Le Katanga maintient le cap. 2008-2009
OECD
PROJECTS
CHINA
PROJECTS
124
33 | P a g e
Figure 11 Katanga: Interconnected Hydroelectric Plants (2007)

Source: NEPAD Business Foundation (2007)
The deterioration of the energy network is seen in the gross difference between installed and
generated capacity. Table 12 shows, nearly 35 percent of the installed capacity is currently non-
operational. For example, the power plant feeding the city and port of Kalemie has recently
broken down due to lack of routine maintenance. In August 2009, the plant was shut down, and
this brought the industries located in Kalemie to a complete halt.
36

Table 12 Katanga: Total Installed Capacity and total Power Available (2008)

Installed
Turbines
Turbines in
Service
Installed
Capacity
Actual
Production
Deficit (actual
vs. potential)
Nseke 4 3 260 189 27%
Nzilo 4 2 108 75 31%
Nwadingusha 6 2 66 11 83%
Koni 3 2 42 26 38%
Total Interconnected 17 9 476 313 34%
Source: NEPAD Business Foundation,(2007)
Although electricity is under-supplied and mainly concentrated in the mining areas, it is not the
most binding constraint to growth for Katanga Province at present. Looking ahead, electricity
might become a limiting factor to support an increase in mining production. Still dependent on
Ingas capacity, the mining sector could be constrained if production returns to past levels while
Inga remains far from its past capacity.
For agriculture, electricity supply does not represent the most binding constraint. Indeed, even if
electricity production were to increase, the sector would first need to resolve constraints of
transportation and lack of finance.

36
Interviews by the authors on condition of anonymity, Lubumbashi, DRC, 10 August 2009.

125
34 | P a g e
From the analysis above, we conclude that transport infrastructure is the most binding constraint
to economic growth in Katanga, particularly in agriculture.
Infrastructure is also the most binding constraint for poverty reduction, given the expected
increased returns to agricultural production given stronger infrastructure networks and the high
correlation between agriculture and poverty.
Is It Human Capital
The stock of human capital of Katanga illustrates unique long-term trends when compared to the
rest of the country. Thirty years ago Katangas education levels were substantially above the
national average, partially due to the workers attracted by the mining industry, and the extended
education program that Gcamines provided its workers and their families. This advantage has
eroded over time, and today Katanga is converging towards the bottomor at least nearing a
lowest common denominator.
Upon the collapse of Gcamines in late 1980s, its pool of workers, though un-or underemployed,
did not leave the region and could be mobilized again when Katangas mining and services
industry recovered in the early 2000s. However, unless that pool is renewed with younger and
equally qualified generations of workers, the mining and services industries will eventually be
constrained by a lack of human capital.

Figure 12 Average Schooling Years by Age Cohort
0
1
2
3
4
5
6
7
8
Y
e
a
r
s

o
f

S
c
h
o
o
l
i
n
g
Age
DRC (without Katanga & Kinshasa) Katanga

Source: Authors calculations based on Enqute 1-2-3 ( 2004-2005)

When measuring children enrolled in primary education between the ages of 6 and 11, Katanga
is similar to other provinces with about 50 percent enrollment for boys, and 25 percent
enrollment for girls. Overall the province, scores below the national average and far below
Kinshasa.
126
35 | P a g e

Figure 13 Net Enrollment Ratio, between 6 and 11 years old

Source: Authors calculations based on MICS-2 (2001)

As discussed in Chapter 2 of this report, there is a significant heterogeneity within Katanga
between mining (Kolwezi, Lubumbashi, even Manono) and non-mining (Dilolo, Kamina) areas.
More children are enrolled in school in mining areas (73 percent average) than in agricultural
areas (44 percent average). In fact, Katanga has always had better education levels in its mining
communities. As shown in Figure 14 below, the average total years of schooling for in Katanga
is higher in mining zones for all age cohorts
37
, with a slightly larger gap for the younger cohorts.
Figure 14 Mining and Agricultural Enrollment Rates


37
Mining zones are Kolwezi, Lubumbashi and Manono. Non-mining zones are Dilolo, Kamina.
45%
43%
73%
75%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
net scholarization rate for 6-11 yr [Katanga Average]
Mining
127
36 | P a g e

Figure 15 Average Years of Education in Mining and Non-Mining Zones


The study will next ask whether these differences in levels of education between agricultural and
mining sectors are driven by supply or demand. In other words, is the problem in the agricultural
regions one of access to educational services, or is it that education is better remunerated only in
the mining sector?
Figure 16 Private Returns to Education (% rate)
0.12
0.05
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
Mining Agriculture

0
1
2
3
4
5
6
7
8
9
5
-
1
0
1
1
-
1
5
1
6
-
2
0
2
1
-
2
5
2
6
-
3
0
3
1
-
3
5
3
6
-
4
0
4
1
-
4
5
4
6
-
5
0
5
1
-
5
5
5
6
-
6
0
6
1
-
6
5
>
6
5
Mining
Non-Mining
128
37 | P a g e
As shown in Figure 16, all things being equal, the returns for an extra year of education are
almost six times higher for those in mining areas. This implies a rate of return for one extra year
of education in the mining areas of 12 percent, compared to a 5 percent in agriculture areas.
38

This suggests that improving access to education in the agricultural sector may not have a
significant effect on growth unless other factors are addressed in concert. It is worth noting that
higher returns to education in mining zones are not necessarily associated to mining jobs. These
higher returns are also associated with the economic activity and services developed around the
mining sector.
Fmployment
In line with the findings on human capital, we observe that skilled and semi-skilled
39
workers in
Katanga earn an average salary of CDF 17.107 a month (about US$25), while unskilled workers
receive, on average, CDF 7.917 (about US$10). Moreover, as Figure 17 shows, skilled and
unskilled salaries are further apart in mining zones, while agricultural areas show no such
differences for salaried workers. Importantly, skilled and semi-skilled workers in mining areas
are paid significantly more than similarly workers in non-mining areas; whereas salaries for
unskilled workers remain the same in both areas.
Again, this evidence suggests that better integration between mining and non-mining sectors
would result in important efficiency gains. Simply by connecting the two areas, people, goods
and capital would flow.

Figure 17 Wages for by education level, mining and non-mining zones
$ 22,852
$ 7,363
$ 8,138
$ 7,868
62%
47%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
$ 0
$ 5,000
$ 10,000
$ 15,000
$ 20,000
$ 25,000
Mining Zone No Mining Zone
Skilled and semi-skilled Un-skilled % of skilled and semi-skilled workers in the sector

*Skilled and semi-skilled workers include those with at least complete primary

38
Authors calculations based on Enqute 1-2-3 (2004-2005).
39
We consider skilled and semi-skilled workers as those with at least completed primary education.
129
38 | P a g e

Human capital is not a growth-binding constraint in Katanga. The skills-intensive industries
in the province (mining and services) would be able to absorb the pool of skilled workers
formally employed by Gcamines, who benefit from years of training and formal education.
Agriculture in Katanga neither demands nor rewards higher formal educationand therefore is
not constrained by human capital.
3.3. Is it Low appropriability?
In the HRV model, low appropriability is defined as a set of constraints that would prevent a
hypothetical investor from entering the market and/or from optimizing the returns to an
investment project. Appropriability is low in the case of government failures (summed up under
the label of expropriation) or market failures (or coordination of market functions) that deter
the investor from investing in a given country at a given time.
Are microrishs binding
Despite remarkable progress, Katanga remains affected by issues of appropriability and under-
performing investment climate. The mining sector shows specific signs of instability, which if
unresolved, could deter investors from expanding capacity in the short-term. The GoDRC has
completed a review of all concessions granted to foreign mining companies, after a drawn-out
two-year process that has created an acrimonious climate of finger pointing between Kinshasa
and Western bilateral and multilateral investors
40
. At the time of this report
41
, some major
mining projects were still awaiting final governments approval. For others, concession
agreements previously awarded have been taken away.
In addition, potential larger mining investors known as mining majors, appear to be staying
away from the DRC at the moment due to concerns about the overall poor investment climate,
particularly the uncertainties related to the legal and regulatory framework. Asked about their
own efforts at attracting fresh capital, a senior representative of a mining firm said: I would say
it is 70 percent due to the investment climate and the insecurity of investments in the DRC and
30 percent due to the international crisis
42
. For those potential investors, the risks might
outweigh the benefits under present circumstances. Furthermore, large companies already
invested in the Katanga mining sector are sitting tight, adopting a conservative investment
stance regarding their plans for capital increase and are making only strictly needed investments
in capital repair/ upgrade.

40
Before the decision to provide debt relief to the Democratic Republic of Congo could recently go ahead, the Paris
Club of creditor nations in November delayed its decision because of concerns by Canadas Government that Congo
was not sticking to contracts signed with Toronto-based Lundin Mining Corp. and Vancouver-based First Quantum
Minerals Ltd.
41
As of early December 2009.
42
Interview by the authors on condition of anonymity, Kinshasa, DRC, 31 October 2009.
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39 | P a g e
Ix It Corruptlon
Another binding micro-level appropriability issue is the enforcement of contracts and the overall
legal and regulatory framework. A recently published Senate Report
43
has highlighted the failure
of anti-corruption measures and persisting mis-management in the mining sector. The Mutamba
Report states that during 2008 the State coffers received only US$ 92 million from the mining
sector, estimating that some US$ 450 million were lost through corrupt practices including
under-invoicing, tax evasion, ores smuggling, fraudulent contracts and poor accounting.
44
The
culprits are said to include state agencies and corrupt officers. According to the report, "no state
serviceis up to date to give reliable figures" on the "number of operators in the mining sector,
their quality and the quantity of products exported." The report cites how the Direction
Gnrale des Impts (DGI) prefers to let debts accumulate, for then negotiate the arrears
subject to heavy penalties. Moreover, even if the companies can certify tax payments, large
discrepancies exist between these amounts and the official figures that correspond.

Are Macrorishs binding
Ix lt Monetury unJ Flxcul problemx
Fiscal issues have been a cause for concern for provincial governments in Katanga as well as
other provinces. An ambitious national decentralization effort launched in 2007
45
now stands at
a delicate juncture, as progress towards fiscal decentralization has stalled. Fiscal revenue
transfers (rtrocession) from the central authorities have fallen short of set thresholds and often
put the provinces at odds with Kinshasa.
Overflxcullzutlon
In the case of Katanga, the resulting fiscal shortfalls have coincided with the global financial
crisis and the decline in world commodity prices (cobalt and copper, resulting in a severe fiscal
crisis. Though the relationship between fiscalization and growth may be less evident in Katanga,
the fiscal situation has had a limiting impact on the ability of the province to provide
infrastructure, public goods and social services. The temptation of policy-makers in Katanga and
elsewhere has been to raise taxes collected at the provincial level. As the largest contributor to
tax revenues in the country (49 percent of the national budget), Katangaand the mining sector
in particularare exposed to pressures of over-fiscalization, both at the formal and informal
levels.
The provincial government has made impressive strides to increase the provincial revenue base,
through fighting corruption and tax evasion, pursuing more robust enforcement (e.g. tax
collection at Kasumbalesa), introducing new levies (e.g. new toll on Lubumbashi-Kasumbalesa

43
After Senator David Mutamba Dibwe Chairman of the Senate Commission.
44
Disillusioned Congo mines chief quits, Financial Times, 30 Sep 2009.
45
131
40 | P a g e
road), and raising corporate taxes. Ultimately, however, there exists a risk that excessive new
taxes at the provincial level will result in over-fiscalization, and scare off private investment.
Interviews in the field appear to point to early encouraging results by the provincial Government
in promoting greater transparency and robust enforcement of revenues collection. The
Government for instance recently enforced a ban on the exports of raw mineral ore. Though
controversial, the measure has temporarily contributed to job creation and income-generation at
the provincial level. The provincial government
46
has found that export declaration at customs
has increased significantly over the period 2006 to 2008. Over 500 trucks transporting un-
declared minerals were stopped at the border of Kasumbalesa. The provincial government also
estimates that toll revenues at Kasumbalesa have jumped from $300,000 per month to $2.5
million per month in the first month of border control enforcement.
47
Total customs revenues
have also jumped to $26 million per month from $10 million per month after just three months.
Lastly, the provinces contribution to the national budget has jumped from $21 million to $800
million.
48
The provincial budget has increased from $62M in 2006 to $170M ($59M of which
were grants) in 2008. Over the same period, revenues at the province level have increased US
$55M to $182M.
49

As a revenue-generating province, however, Katanga feels increasingly penalized by the
decentralization law and its provisions, whether by the lagging pace of revenue transfers
(rtrocession) or the appropriation by the central government of an increasingly larger revenue
base (e.g. through lowering the threshold beyond which large corporations or grandes
enterprises are required to contribute directly to the national budget rather than the provincial
budget.) In 2008, the revenue transferred to Katanga should have amounted to 51 trillion FCD.
50

The actual transfers amounted to 24 trillion FCD,
51
leaving a gap of 46 percent that the
provincial Government was left to fill.
Are CoorJlnutlon fullurex blnJlng
According to the HRV framework, many inputs that are required for production can be provided
either by the government or the market. Infrastructure is one such input. In the DRC, the private
sector has long been compensating for the government failures under the Mobutu regime, by
delivering public goods through private finance. The private sector took on the burden of most
roadway maintenance, while ONATRA and SNCC dealt with rail and river ways.

46
Interview with Governor Mose Katumbi. Lubumbashi, DRC. 9 August 2009.
47
Ibid.
48
Ibid.
49
World Bank estimates, 2009. These estimates, which were developed in coordination with statisticians in the
provincial government, differ somewhat from those given by Governor during the interview, indicating that some
weaknesses in the recording of provincial revenues and expenditures persist.

50
Interview with Governor Mose Katumbi. Lubumbashi, DRC. 9 August 2009.
51
Includes actual and virtual retroceeded revenues ( recettes rtrocdes , subvention de l'Etat la province du
Katanga , subvention virtuelle pour salaires). Amount confirmed by World Bank estimates, 2009.
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41 | P a g e
Mining companies have contributed to infrastructure projects, such as the rehabilitation of the
Kolwezi-Kasumbalesa road link, and some roads in Lubumbashi (for example the road from the
city to the airport.) For the most part, however, private firms including those invested in mining
in Katanga, have not assumed Gcamines previous role of patron to the population and
provider of public goods. Given the magnitude of current infrastructure needs, several mining
executives have said they would be ready to contribute greater public goods if the right pooling
mechanisms for resources could be coupled with tax incentives. For instance, it was a private
mining firm that contributed to the rehabilitation of the 1956 Nseke hydro-electrical power plant,
in return for future discounts on the firms energy consumption bill. Other private firms may be
willing to invest in small railway tracks or roads, for example to Pweto, to open up routes to
Tanzania and Dar-es-Salaam for mining exports
52
.
Traditionally-established investors in the DRC mining industry have signed the Extractive
Industries Transparency Initiative (EITI), which strengthens the collective leverage of the
industry and promotes self-regulation. Newer investors, coming mainly from China, India and
the Middle East should be encouraged to do so. For example, in the forestry sector, the largest
industrial firms have voluntarily engaged in a 3-year certification process guaranteeing
sustainable harvesting of timber and community-driven development
53
. Such an industry-driven
policing would be important, particularly in light of the recent Senate report
54
.
Some important market externalities could be tackled to improve information and coordination
functions, allowing private investors to conduct business more efficiently. Coordination failures
do exist, though it would be difficult to say that they represent the most binding constraint.
Where this coordinating role would best be placed is not clear, either.
The provincial government might have a key role to play in this regard, as it is best placed to
spearhead public-private partnership-building to deal with targeted issues. However, as long as
fiscal decentralization remains ineffective, the provincial authorities will have limited long-term
capacity. The national government would also need to step in to play a coordinating and
financing role, in particular with regards to investments from national utility agencies in
transport (river and rail) and electricity. The local private sector is financially and
organizationally weak, with limited institutional capacity, mainly through the FEC.
As the State continues to fail its prerogatives to provide public goods, only a few private sector
actors have stepped up to fill in the void left by the State; and basic social services and public
goods are being met only through acts of corporate and personal philanthropy at the
province/state levels
55
.

52
Interviews by the authors. Kinshasa, DRC. 30 October 2009.
53
Interviews by the authors. Kinshasa, DRC. 30 October 2009.
54
See Mutamba Senate Report. September 2009.
55
Infrastructure projects, such as school renovations, hospital material, and even infrastructure road links have been
financed in Katanga through the corporate philanthropy of retail, banking and mining firms established in
Lubumbashi, most of which have long been operating in the province, as well as through the personal donations by
key provincial businessmen and political personalities.
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42 | P a g e
Long-term issues for the sector, such as ensuring an adequate supply of high-skilled workers and
the provision of energy and infrastructure could be secured through private finance. International
private investors have the human and financial capacity to act as coordinating entities; what
appear to be missing are the right fiscal and economic incentives. At the moment, however, the
necessary incentives do not exist. As the global financial crisis has crippled the economy and
shrunk revenues, both the central and provincial administrations have looked to the private sector
to make up for fiscal shortfalls. As one senior mining executive put it What we have today is
the opposite of incentives...The private sector is in effect being discouraged to expand, adding
that as the stranglehold of the financial crisis becomes more severe, Kinshasa looks to us
[private sector firms] as cash machines to provide fiscal revenues
56
.
4. Conclusion
Given its location, history and immense natural and mineral wealth, Katanga has assumed the
role of the locomotive of the Congos economy. Mining in Katanga has for decades been the
largest single revenue provider for the central authorities in Kinshasa. Following record highs in
copper and cobalt prices in early-2000s, the mining sector in Katanga was poised for an
ambitious growth and expansion trajectory, and owes its recent recovery to this sectors strength.
Thanks to foreign direct investment flows, the province had begun to rehabilitate obsolete mines,
and explore new ones. However, the drawn-out review of mining concessions, which began in
December 2007, might have eroded the private sectors confidence in the national authorities.
As the risks of appropriability increase, foreign companies have delayed priority investments,
particularly for the mining sector, and the result is a financing crunch for small and medium
sized companies.
Having previously enjoyed a national comparative advantage in higher education and literacy,
the collapse of Gcamines meant the collapse of its free public education to the workforce and
their families. As a result, a previously abundant supply of skilled workers has begun to
converge towards the national average, but as yet does not pose a binding constraint to growth
for the mining sector.
The most binding constraints for agriculture in Katanga are the crippling lack of infrastructure
and access to finance. Particularly in northern Katanga, which was once the granary of the
province, infrastructure is a major concern. Railways, important for the transport of goods and
people to markets, are the weakest links in the infrastructure system. Further, agriculture is not
attracting the foreign investment and domestic finance it needs to grow, and as a result the
province is at risk of food shortages. Access to finance is extremely limited in size and
borrowing terms, especially in the agriculture sector. Unless productivity in agriculture can be
kick-started again, Katanga might find itself overwhelmed by demographic explosion and face
food shortages in the near future.
Strong governance and strategic thinking by the provincial government is likely to be an

56
Interview by the authors. Washington, DC. 10 December 2009.

134
43 | P a g e
important factor for growth in the next several years. The current provincial government has
implemented a number of measures which appear to have encouraged investment and
employment generation. Efforts for good governance will need to be consolidated and
government strategies reinforced to ensure the strong, diverse, private sector led economic
growth.

Policy Issues
The overriding task for the provincial government is to find ways to mitigate the impact of the
global slowdown, and to continue to invest in the provinces infrastructure at a time when
revenue transfers from Kinshasa have declined and foreign investments have slowed. The
provincial administration is looking to the future of the province beyond mining
57
, aware that
increasing food insecurity and lagging health indicators point to growing inequality between the
copper belt and the agricultural regions.
The local government should take a pro-active approach towards infrastructure development, as
the lack of infrastructure can be blamed for many lost opportunities. For instance, an unstable
electricity supply can be blamed for the provinces failure to locally produce cement. A cement
plant on the Kabalo-Kalemie rail line could produce and export cement, or substitute for imports
arriving now from South Africa.
Un-bundling large projects could prove to be an effective approach to infrastructure
development. Public-private partnerships would allow resources to be pooled and for portions of
large infrastructure project of direct interest to private sector operators to be independently
financed. For example, the 200km from Lubumbashi to Pweto on Lake Mweru could be an
alternative route to Durban for mining firms to exports goods through the port of Dar-es-Salaam.
This may present more competitive export options, and its development could potentially
encourage private investors. Similarly, the construction and management of small energy plants
could be contracted to the private sector.
The infrastructure bottlenecks in transport, energy or human capital could be partially resolved
by mobilization of private finance. The provincial and central governments must create
appropriate incentives for market coordination, pooled private finance and strong public private
partnerships. Failure to do so will compound existing market coordination failures.

57
Katanga: LAprs-Mines. 2007.
135
44 | P a g e
References
IMF. 2001 and 2007. Democratic Republic of the Congo: Selected Issues and Statistical
Appendix. 1996-2005.
Banque Mondiale, 2005. Projet dappui la dcentralisation pour le renforcement des
capacits.
Banque Mondiale, 2006. Document de Stratgie de la Croissance et de la rduction de la
Pauvret de la Province du Katanga.
Cuvelier, J., 2009. The Impact of the Global Financial Crisis on Mining in Katanga,
International Peace Information Services.
Ecnomist Intelligence Unit. Country Reports.
Economist Intelligence Unit. Country Data.
Economist Intelligence Unit. Country Profiles.
FAO. 2008. Executive Brief: Democratic Republic of Congo Comprehensive Food Security and
Vulnerability Analysis (CFSVA) / 2007- 2008
Hausmann, R., & Klinger, W., 2008. Growth Diagnostic: A Mindbook.
Hausmann, R., Rodrik, D., & Velasco, A. 2004. Growth Diagnostics. John F. Kennedy School of
Goverment, Harvard University.
IMF. 2006. Poverty reduction Strategy Paper
Katanga: Contre Vents et Mares, Le Katanga maintient le cap. 2008-2009
Ministre du Plan, Rpublique Dmocratique du Congo, 2005, Monographie de la Province du
Katanga.
NEPAD Business Foundation. 2007. The Challenge of Katanga toward the Need for Electrical
Energy.
World Bank, Prioritizing Infrastructure Structure Investments: a Spatial Approach
(Preliminary Draft)
136
45 | P a g e
See Ligeois, M, 2008. La Dcentralisation en RD Congo: Enjeux et Dfis. Groupe de
Recherche et dInformation sur la Paix et la Scurit.
UNDP, 2009. Province du Katanga: Pauvret et Condition de Vie des Mnages
US Geological Survey, 2007. Mineral Commodities Summary.
137
1

Kinshasa Province,
DRC

2009
A u l k n k

138
2 | P a g e
Table of Contents
Acknowledgements ......................................................................................................................... 5
Executive Summary ....................................................................................................................... 6
1. Introduction ............................................................................................................................. 8
1.1 Kinshasa: At a glance ....................................................................................................... 8
1.2 Current Composition of GDP ......................................................................................... 11
1.3 Describing Growth Collapse .......................................................................................... 13
1.3.1 The economic debacle of the 1970s and 1980s ...................................................... 13
1.3.2 The mass lootings and the wars .............................................................................. 14
2. Poverty Profile ....................................................................................................................... 15
2.1 Employment ................................................................................................................... 16
2.2 Poverty and Education ................................................................................................... 18
2.3 Poverty and Health ......................................................................................................... 19
3. Applying the Growth Diagnostics Framework ...................................................................... 21
3.1 Is access to finance the binding constraint? ................................................................... 21
3.1.1 Is it lack of international financing? ....................................................................... 21
3.1.2 Is it lack of domestic financing or poor intermediation? ........................................ 22
3.2 Is it lack of social returns to economic activity? ............................................................ 24
3.2.1 Is it Geography? ...................................................................................................... 24
3.2.2 Is Infrastructure the binding constraint? ................................................................. 24
3.2.3 Is it human capital? ................................................................................................. 28
3.3 Is it Low Appropriability? .............................................................................................. 31
3.3.1 Are micro-risks binding? ........................................................................................ 31
3.3.2 Are macro-risks binding? ........................................................................................ 32
4. Conclusion ............................................................................................................................. 34
Policy Issues .............................................................................................................................. 35
References ..................................................................................................................................... 36

139
3 | P a g e

Figure 1 Map of Kinshasa ............................................................................................................... 9
Figure 2 Kinshasa: Population Growth (1967-2007) .................................................................... 10
Figure 3 Poverty Ratios ................................................................................................................ 15
Figure 4 Human Poverty Index ..................................................................................................... 16
Figure 5 Urban DRC, Kinshasa and Katanga: Primary Source of Income ................................... 17
Figure 6 Primary and secondary school enrollment rates ............................................................. 18
Figure 7 Percent of population with complete and incomplete secondary education ................... 19
Figure 8 Vaccination rates ............................................................................................................ 19
Figure 9 Stock of Human Capital ................................................................................................. 29
Figure 10 Returns to schooling by education levels ..................................................................... 29
Figure 11 Percent of skilled workers and salaries for skilled and non-skilled workers ............... 30

Table 1 Kinshasa: At a glance ........................................................................................................ 8
Table 2 Kinshasa: Age distribution by gender and age (2005) ..................................................... 11
Table 3 Kinshasa: GDP Composition 2006-2008 (Constant 2006 Prices) .................................. 12
Table 4 Kinshasa: Cost of the lootings ......................................................................................... 14
Table 5 Employment in Kinshasa ................................................................................................. 17
Table 6 Infant Health Indicators ................................................................................................... 20
Table 7 The DRC: Private investment by Sector (2008)* ............................................................ 21
Table 8 Categorization of access to finance as an obstacle to development ................................ 22
Table 9 DRC: Kinshasa: Reasons for not asking for credit during 2006 ...................................... 23
Table 10 Short-term Vs. long-term deposits ................................................................................. 23
Table 11 Kinshasa: Households with access to infrastructure at a reasonable distance ............... 24
Table 12 Kinshasa Ville: Paved and non-paved roads ................................................................. 25
Table 13 Kinshasa: Electricity as an obstacle for growth ............................................................. 26
Table 14 Kinshasa: Selected Indicators Electricity ..................................................................... 27
Table 15 Kinshasa: Private investment by Sector (2008) ............................................................. 28
140
4 | P a g e
ANAPI Agence Nationale pour la Promotion de lInvestissement
ANEZA Association Nationale des Enterprises Zaroises
CDF Congolese Franc
NGO Non-Governmental Organization
141
5 | P a g e
Achnowledgements

1

1
142
6 | P a g e
Executive Summary

As the capital of the nation, Kinshasa once enjoyed a privileged position in trade and
investment. Kinshasas active port and a reliable electricity grid, as well as a large well
educated population, once provided the city with several comparative advantages. In the
1970s, the capital boasted a growing industrial and manufacturing sector that served the citys
population as well as large parts of the country, producing a wide variety of manufacturing and
industrial goods, including automobile assembly lines for Leyland, Fiat and Renault-Peugeot.
Beginning in the 1980s, the city slipped into a decline that affected the industrial and
manufacturing sectors, and suffered an economic downturn that was amplified by a spiraling
inflation and subsequent financial meltdown. The mass lootings and war of the 1990s furthered
this trend and led to total economic collapse. The gradual degradation of public utilities and the
public administration led to a deterioration of the energy and transport infrastructure.
Over the entire period, demographic growth, due to high population growth and
urbanization have put enormous pressure on the ability of the city-province to create
sufficient employment or provide adequate social services to meet the needs of its populace.
The demographic growth rate steadily grew over twenty years from 2.7 million in 1984 to 5.7
million inhabitants in 2004. From there in 2004, it exploded to over 8 million in 2008 (possibly
millions more depending on estimates.) It is hard to imagine how those extraordinary rates could
be sustained in the future.
The poverty diagnostic finds that, while the city-province fares better than the rest of the
country in terms of standard measures of poverty, the population continues to suffer from
higher than average rates of joblessness and worse health outcomes than the rest of the
country. Lack of employment is the most challenging constraint to poverty reduction in the
capital province. High unemployment and high underemployment in the informal sector are
related to poverty levels in Kinshasa. Also, despite better access to health services than other
parts of the country, health outcomes are not substantially better in Kinshasa. This evidence
suggests that factors other than access are affecting health outcomes. Low health outcomes may
be linked to joblessness combined with crowded dwellings with very basic conditions, and a high
number of migrants who may arrive in Kinshasa with existing health problems.
Velasco (HRV)
3
, finds that Kinshasa suffers from a number of the classic HRV constraints,
but that provision of electricity and low appropriability, respectively, signify the most

2
The authors would like to express a deep debt of gratitude for the time, the energy and the passion that all their
interlocutors invested in their research. The authors would like to note that any errors, omissions, views and
opinions contained herein are solely those of the authors.
3
Hausmann, R., Rodrik, D., & Velasco, A., 2004, Growth Diagnostic. John F. Kennedy School of Goverment,
Harvard University.
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7 | P a g e
binding constraints. The bankruptcy of the previously centralized administration and of the
major para-statals in utilities, transport and mining led to a degradation of the citys
infrastructure, particularly of the energy infrastructure. As a result, the city today cannot provide
a reliable energy supply to its industries and residents. Additionally, as with the nation as a
whole, lack of clarity and certainty in the fiscal and regulatory framework discourage private
sector growth and encourage evasion and corrupt practices. As a province, Kinshasa suffers from
this national constraint even more due to its proximity to the central Government. These
challenges have pushed the majority of the citys population into the informal economy and the
resulting precariousness, manifested in the rapid rise of subsistence agriculture and informal
commerce.
In 2025, the city-province of Kinshasa is projected to become the 16th largest urban area in
the world (with 16.8 million inhabitants), behind Cairo both ahead of Beijing, Lagos,
Buenos Aires, Moscow, Rio and Paris.
4
Whether Kinshasa can leap-frog to 2025 and
emulate the dynamism of those global city-regions is an enormous challenge, given the current
economic and infrastructure degradation and the legacy of the lootings and wars.
In that regard, a regional conurbation of Brazzaville-Kinshasa may offer a viable regional hub
for growth and investment. For now, however, a key infrastructure bridge/rail project linking the
two riparian central African capitals has had to be shelved due to political sensitivities5.
The city-province of Kinshasa faces unique challenges; and whether Kinshasa can develop
a new industrial and manufacturing base and self-discover new growth industries will
determine whether it can thrive as an autonomous and decentralized political and
economic entity. The province would need to attract labor-intensive industries to absorb the
over-supply of skilled workersthat will enable it to attract public and private investments and
compete with the economic dynamism of provinces such as Katanga, Bas-Congo or the Kivus.
Kinshasas main challenge lies in re-imagining its role for the country and moving from an
entrept trade port towards becoming a centre of manufacturing and industrialization, creating
jobs and attracting foreign investment. Modernizing Kinshasa will require tremendous
mobilization of resourcesboth financial and humanbut also considerable political will. The
obstacles are innumerable, from degrading infrastructure, to lack of access to finance, to
appropriability risks, to investments.

4
Demographia, World Urban Areas Projections 2007 & 2020. Accessed at www.demographia.com/db-
worldua2015.pdf
5
Interviews conducted by the authors. Kinshasa, DRC. 30 October 2009.
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8 | P a g e
Introduction
Table 1 Kinshasa: At a glance
Kinshasa DRC
Population growth (annual %) 4.4* 2.9
Life expectancy at birth, total (years) 45.8 46.4
Literacy rate, youth female (% of females ages 15-24) 78 63.1
Literacy rate, youth male (% of males ages 15-24) 64 78.0
HDI (2006) 0.60
Poverty (%) 41.6 71.3
Source: World Development Indicators, DSRP 2005, INED 2002, UNDP, EDS RDC 2007, Demographia,
World Urban Areas Projections 2007 & 2020
6
, 1-2-3 Survey
7
*2005-2010

Kinshasa
8
occupies 9,595 km in a geographically privileged position on the south bank of the
Congo River. The capital city of the Democratic Republic of the Congo (DRC) is not situated on
the ocean as in most African coastal states, but 350 km away from the sea at the first inland point
where the Congo River becomes navigable.
The province of Kinshasa shares a border to the north with the Republic of Congo, formally in
the Congo River itself. The province is bordered to the southwest by Bas-Congo, home to the
capitals access to the sea via the port of Matadi. Its western border is with Bandundu.

6
Accessed at www.demographia.com/db-worldua2015.pdf
8
Under the new Constitution, the capital of the nation also became the capital of the new province. We refer here to
Kinshasa, the ville-province.
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9 | P a g e
Figure 1 Map of Kinshasa

Source: UNDP (2005)
Kinshasas population is currently estimated at between 8 to 10 million inhabitants, or as much
as 25 percent of the total DRC population
9
(see Figure 2). The population growth rate, which
was 4.7 percent per annum during most of the 1990s, has accelerated since 1998. This may be
due to the outbreak of the Congo wars and the influx of displaced population that fled to large
cities for shelter and safety. It is estimated that as many as 231 000 inhabitants fled to the city
due to security fears between 2003 and 2004
10
. The adjacent regions of Bas-Congo and
Bandundu also provide a steady flow of migrants. The newcomers to the city settle on marginal
land in the city's outskirts, such as the informal settlements on the road outside of Kinshasa to
Matadi or the floating slum dwellings on stilts on the bank of the Congo River near

9
Kapagama and Waterhouse (2009).
10
Monographie de Ville de Kinshasa (2005).
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10 | P a g e
Baramoto
11
, and many join relatives in the already impoverished and overcrowded households in
the cits (inner cities or ghettos
12
.)

Figure 2 Kinshasa: Population Growth (1967-2007)

Source: UNDP (1967-1984), Monographie de la Ville de Kinshasa (2004), Gouvernement Provincial de Kinshasa (2007)

The current demographic pressure on the metropolitan areas of Kinshasa is evidenced by the
average household size of 6.7 people, with over 45 percent of households reporting 7 or more
household members
13
. Kinshasa today ranks 30
th
out of the 180 largest urban areas in the world
in terms of urban population (8,540,000 inhabitants
14
.) It is the third largest urban agglomeration
on the continent behind Cairo (17,035,000 inhabitants) and Lagos (9,185,000 inhabitants.) In
2025, Kinshasas population growth was projected to make the province the 16
th
largest urban
area in the world (with 16,775,000 inhabitants in 2025 and 20,715,000 in 2030), behind Cairo
but ahead of Beijing, Lagos, Buenos Aires, Moscow, Rio and Paris
15
.

Life expectancy in Kinshasa is much lower than in most capitals in Sub-Saharan Africa (45.8 vs.
52 years
16
.) In line with the rest of the country, Kinshasas youth make up about half of the

11
Visit and interviews conducted by the authors. Kinshasa, October 2009.
12
FAO (2005).
13
Monographie de la Ville de Kinshasa (2005).
14
worldua2015.pdf
15
worldua2015.pdf
16
UNDP (2007).
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11 | P a g e
population (nearly 52 percent is below 15), as reflected in the high dependency ratio of 1.12
17
.
This trend is projected to continue with decreasing mortality rates and increasing fertility rates. A
major challenge for the city is to create jobs to absorb a labor force of almost 4 million people,
and that is expected to double in 15 years
18
.

Table 2: Kinshasa: Age distribution by gender and age (2005)
Age Cohort
Male Female Total
% of total population
0-4 10.5 10.4 20.9
5-14 15.4 15.4 30.8
15-49 21.0 21.2 42.2
50-64 2.7 2.1 4.8
65+ 0.7 0.6 1.3
Total
50.3 49.7 100.0
Source: Monographie de la Ville de Kinshasa (2005)


In 2008, Kinshasas economy was dominated by trade (48.2 percent), tertiary non-trade i.e.
services (21.6 percent), agriculture (10 percent) and industry (8.3 percent). The contribution of
the primary sector to GDP is around 11 percent, with a share of about 18 percent from the
secondary sector. Industry and manufacturing account for around 8 percent of provincial GDP.
At almost 70 percent to the provinces GDP, the citys dependence on the services industry is
evident (see Table 3).

The secondary sector is the only one posting negative growth in 2008, led by a sharp decrease in
water production. Industry in Kinshasa today is concentrated around agro-pastoral (including
timber), food, chemical, construction, industrial shipbuilding yards and metal processing
industries. The collapse of the industrial and manufacturing sectors increased the dependency of
the city on services, which currently account for more than 74 percent of the provinces GDP,
while the contribution of the primary sector to the economy is less than 13.5 percent (see Table
3).

17
The dependency ratio is measured by the quotient: (population between 0-14 + population 65+) over population
between 15-64.)
18
worldua2015.pdf
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12 | P a g e
Table 3 : Kinshasa: GDP Composition 2006-2008 Constant 2006 Prices
2006 2007 2008

Millions
FC
% of
GDP
Millions
FC
% of
GDP
06-07 %
change
Millions
FC
% of
GDP
07-08 %
change
I. Primary Sector 91.079 6,2 146.265 9,1 60,6 171.066 10,7 17,0
I. Agriculture, fishing
and breeding
84.380 5,7 138.211 8,6 63,8 161.977 10,2 17,2
A. Agriculture 74.761 5,1 127.740 7,9 70,9 151.032 9,5 18,2
B. Fishing 8.077 0,5 8.077 0,5 0,0 8.077 0,5 0,0
C. Breeding 292,8 0,0 349,1 0,0 19,2 471,3 0,0 35,0
II. Timber 1.248 0,1 2.045 0,1 63,8 2.397 0,2 17,2
III. Mining 5.405 0,4 5.797 0,4 7,3 6.235 0,4 7,6
II. Secondary Sector 417.725 28,2 437.998 27,2 4,9 352.327 22,1 -19,6
I. Industrial
Production
120.229 8,1 131.384 8,2 9,3 137.335 8,6 4,5
II. Electricity
Production
85.044 5,8 79.357 4,9 -6,7 75.939 4,8 -4,3
III. Water Production 204.762 13,8 216.378 13,4 5,7 126.920 8,0 -41,3
IV. Infrastructure 7.688 0,5 10.879 0,7 41,5 12.131 0,8 11,5
III. Tertiary Sector 950.881 64,3 1.010.829 62,7 6,3 1.046.530 65,7 3,5
I. Trade 694.865 47,0 764.988 47,5 10,1 805.882 50,6 5,3
II. No Trade 256.015 17,3 245.840 15,3 -4,0 240.648 15,1 -2,1
Total GDP at constant
prices
1.478.999 100 1.611.727 100 9,0 1.593.142 100.0 -1,2

The table above illustrates the trend in economic growth in Kinshasa. Overall, Kinshasas most
dynamic sector is the primary sector, led by the expansion of agro-pastoral activities mainly
through urban agriculture
19
. Over the same period the secondary sector decreased by 12
percent, led by a reduction in water and electricity production. The tertiary sector increased
marginally (10 percent), thanks to an increase in trade activities. In 2008, Kinshasas economy
was dominated by trade (57.2 percent), tertiary non-trade (services) (17.1 percent) and
agriculture (12 percent.)
The composition of the provincial GDP is indicative of the binding constraints existing in the
industrial and manufacturing sectors. The primary sector today is constrained by a number of
factors. First, the province and its hinterland are known to be unsuitable for agriculture because
of their sandy soil with low water retention and poor organic matter content
20
. As such, the

19
Tollens (2002).
20
This is particularly true in the Bateke Plateau (Maluku municipality), which suffers from chronic water shortage
and where ground water irrigation could be prohibitively expensive. Use of fertilizer and appropriate farming
methods such as timely planting to take advantage of available rainfall are required. Many small farmers, including
Kinshasa dwellers that are allocated plots by the Government, have difficulty developing profitable and
environmentally sustainable farming in the Bateke Plateau. Also FAO (2002.)
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13 | P a g e
province traditionally was the industrial center, while agriculture was developed on more fertile
lands in Equateur, Bandundu and Bas-Congo. Table 3 also shows that Kinshasa is unable to
provide reliable public goods (i.e. water and electricity).
Describing Crowtb Collapse
As the capital of the nation, Kinshasa once enjoyed a privileged position in trade and investment.
Kinshasas active port and a reliable electricity grid, plus its large population once provided the
city with several comparative advantages. Kinshasa attracted the headquarters of large
manufacturing and industrial companies and of financial and banking services. In the 1970s, the
capital boasted a growing industrial and manufacturing sector that served the citys population as
well as large parts of the country. Beverages (beer and soft drinks) led the manufacturing sector,
followed by textiles, shoes, cosmetics, plastics, food processing and other consumer goods.
Industrial capacity increased, and the city enjoyed a growing market and fiscal incentives. Major
investments such as a 120.000-ton steel mill near Maluku, industrial shipbuilding yards,
automobile assembly lines for Leyland, Fiat and Renault-Peugeot, as well as several timber
processing facilities came to the region.
Tbe economic debacle of tbe s and s
Zarinization and the radicalization programs left their destructive legacy on Kinshasas
economy and its most productive sectors. Industry and manufacturing companies were targeted
by the program and nationalized, and even if most were given back later to the original owners,
they suffered losses, capital flight and inventory and machinery depletion. Food processing and
manufacturing companies suffered the shock of disruption in the production of raw materials
caused by the nationalization measures imposed on agriculture.
In the early 1980s the national private sector was again growing, led by the booming mining
sector. Up until the 1990s the mining industry experienced a sharp contraction due to the
collapse of copper and cobalt prices as well as a lack of investment in production that led to the
closing of several of the Gcamines mines. From 1988 to 1994, the share of the mining sector in
the GDP dropped from over 11 percent to less than 5 percent
21
; mining lost its capacity to
generate hard currency and most revenues for the Government. The secondary and tertiary
sectors suffered as well, as the economy in Katanga and in Kinshasa were directly or indirectly
dependent on mining. The State and the large para-statal utilities, transportation and mining
companies, which were the main providers of jobs and public goods in Kinshasa saw their
revenues drop. Brought to the brink, these large para-statals cut salaries, and laid-off and
stopped paying hundreds of thousands of public servants.
Related to the sharp decline in mining production and the fiscal crisis that followed, the mass
lootings (grands pillages) of 1991 and 1993 contributed to accelerating the large-scale
bankruptcies of both para-statal and private companies, including the few foreign private
investors who had survived the chaos of the Zarinisation.

21
DRC, Statistical Annex, IMF. DRC mining and transport sector, key statistics (1988-1994).
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14 | P a g e
Many companies headquartered in Kinshasa had operations in other provinces and suffered twice
the impact of nationalizations and lootings. One private operator in maritime transport said his
company survived a total number of thirteen wars and lootings between the mid-1970s and the
early 2000s
22
. Privately owned agricultural and cattle-raising estates were nationalized in the
mid-1970s, and in some cases, the properties were not returned to their owners until as late as
2000
23
. The agri-business firm SEBO lost 75 percent of its cattle in the wars between 1990 and
1991, with about 6.000 to 7.000 heads of cattle looted by the rebels and stolen by the population.
3.000 to 4.000 heads were lost at the Bankana farm near Kinshasa
24
.
Tbe mass lootings and tbe wars
Kinshasas most disruptive events were the mass lootings of 1991 and 1993 where unpaid
soldiers mutinied and looted assets and properties in Kinshasa and throughout the country). As
Table 4 shows, an estimated US$ 800 million and 94,000 jobs were lost in the capital during the
lootings
25
(see Table 4).
Table 4 : Kinshasa: Cost of the lootings
Item Unit
Commerce,
and
Distribution
Agro and
Food
Industry Manufacture Mining Services Others Total
Cash Million USD 6.1 1 2 0.02 4 0.2 13
Stock Million USD 339 27 90 8 40 5 510
Infrastructure Million USD 127 25 78 7 85 7 330
Total Million USD 473 53 170 15 129 13 853
Companies Number 491 59 103 9 144 7 813
Jobs Thousands 22 13 18 10 30 0.8 94
Source: Association Nationale des Entreprises Zaroises ANEZA (2005)
* Was succeeded by the Federation des Entreprises Congolaises, FEC.
In 1996, when the military conflict expanded into the provinces of Equateur and Orientale, the
supply of raw materials and basic foodstuffs to the capital became scarcer. Between 1996 and
1999, the number of ships arriving in Kinshasa from Orientale fell from 42 to 0 and from
Equateur from 162 to 51.
26
This limited the productive capacity of the food-processing industries
in Kinshasa. The impact of the mass lootings and wars meant the end of 1.800 companies from
all sectors and a loss of over 100.000 jobs
27
. The share of the industrial sector in the provinces
economy declined from 26 percent during the 1970s to 5.2 percent today
28
.

22
Interviews conducted by the authors. Kinshasa, DRC. 27 October 2009.
23
Interview conducted by the authors. Kinshasa, DRC. 30 July 2009.
24
Interviews conducted by the authors. Kinshasa, DRC. 30 July 2009.
25
Association Nationale des Entreprises Zaroises, ANEZA (2005).
26
Tollens, E., 2003, Current Situation of Food Security in the DR Congo: Diagnostic and Perspectives
27
Africa South of the Sahara (2003)
28
Programme du Gouvernement Provincial de Kinshasa 2007-2011 (2007)
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15 | P a g e
Poverty Profile
Kinshasas poverty levels are the lowest in the country. The poverty ratio is 41 percent in
Kinshasa as measured by the headcount ratio, whilst the national average is 71.34 percent and
levels are as high as 94 percent in Equateur. The second lowest incidence of urban poverty can
be found in Kasa Oriental, with 63 percent of the population under the threshold, 22 percentage
points above Kinshasa. The significant gap between Kinshasa and the rest of the country is
illustrated in Figure 3 using three different poverty measures. On all three counts, poverty and the
intensity of poverty are lower in the capital than national averages and lower compared with
other urban areas.

Figure 3 Poverty Ratios
71.34
32.23
18.02
41.6
13.43
5.89
poverty headcount (%) poverty gap (%) squared poverty gap (%)
National Kinshasa

Source: DRC Poverty Diagnostic 2006, using 1-2-3 Survey
Looking at a different measure of human deprivation, in this case the Human Poverty Index, one
is able to measure the evolution of poverty levels over time, as in Figure 4. Kinshasas lower
Human Poverty index remains relatively stable, but between 2001 and 2006 the level of human
poverty increased almost 3 percentage points to 25.1 from 22.4 (or a 12 percent increase.)

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16 | P a g e
Figure 4 Human Poverty Index
40.7
42.1
41.2
22.4
24.6
25.1
Human Poverty Index 2001 Human Poverty Index 2003 Human Poverty Index 2006
National Kinshasa

Employment
Lack of employment is the most challenging constraint to poverty reduction in the capital
province. High unemployment and high underemployment in the informal sector are related to
poverty levels in Kinshasa. According to the 1-2-3 Survey, 44 percent of heads of household
work in the informal sector.
Lower poverty levels and a relatively safe security act as magnet for people moving from rural or
other urban areas of the country, and generate a growing supply in the available labor force.
However, the local economystill fragile after decades of contractionis unable to create jobs
for the city, and less so to absorb an increase in labor supply. Economic activity cannot respond
adequately and as a result the gap between labor supply and labor demand widens giving
Kinshasa higher unemployment rates than the rest of the country (Table 5). In addition, under-
employment absorbs half of the labor force, suggesting a large fraction of the labor force is
currently employed under precarious conditions and instable jobs most probably in the informal
agriculture sector or the informal trading that goes around the city many markets.
As shown in Table 5, the level of active population is lower in Kinshasa compared to the rest of
the country, although the level of under-employment is also lower. Of the active population
(42.3 percent) we observe that 67.9 percent is either unemployed or under-employed, which
suggests that only 13.5 percent
29
of the population has a stable job. In this measure, however,
Kinshasa is similar to the rest of the DRC with 14.2 percent (60.2 percent vs. 23.6 percent).

29
42.3% x 32.1%
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17 | P a g e
Table 5: Employment in Kinshasa
Kinshasa DRC
Active Population 42.3% 60.2%
Unemployment rate according to ILO 15.0% 3.7%
Total underemployment rate 53.1% 72.7%
Source: UNDP 2009, using 1-2-3 Survey (2004-2005)
The study concludes that low demand for labor is a constraint to poverty reduction. Policy
efforts should aim at increasing opportunities for job creation and attracting investment.
It is also evident that, under current conditions, promoting immigration towards Kinshasa is not
an effective policy response to poverty. On the contrary, policies should aim at creating
opportunities in the provinces and reducing and/or reversing migration flows into Kinshasa. This
would allow the labor market in the capital to correct itself, and absorb the gap between labor
demand and supply.
About 75 percent of the households in Kinshasa report deriving their main source of income
from the services sector, including informal trading, NGOs and services (55 percent) and the
government (19.8 percent). Manufacturing accounts for only 10 percent of the total income
generated in Kinshasa, corroborating the narrative of growth collapse in manufacturing and
industry (see Figure 5).
Figure 5 Urban DRC, Kinshasa and Katanga: Primary Source of Income
58.9%
4.6%
64.2%
5.4%
10.6%
4.0%
18.4%
55.0%
17.5%
5.8%
5.9%
4.7%
5.9%
19.8%
3.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DRC Kinshasa Katanga
Government
Education
Services
Construction
Manufacture
Extractive activities
Fishing
Agriculture

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18 | P a g e

Poverty and Education
Human capital is not a binding constraint to poverty in the province. In fact Kinshasa has by
far the highest level of human capital in the DRC. Both primary and secondary school enrolment
rates were more than twenty percentage points above the national average in 2007. Secondary
school enrollment rates in Kinshasa are double those in the rest of the country (56.3 percent vs.
28.9 percent). In tertiary education, the province attracts almost one half (46.4 percent) of all
college graduates in the country. By comparison, Katanga, in second position, shows only 20
percent of tertiary enrollment rates.
Figure 6 Primary and secondary school enrollment rates
61
28.9
82.3
56.3
net primary school enrollment
rate
net secondary school enrollment
rate
National Kinshasa

Source: EDS RDC (2007)
Looking at the dynamic component of education, the situation looks slightly different because
while DRC improved in terms of primary net enrollment from 51 percent to 61 percent between
2001 and 2007 (10 percentage points), in Kinshasa the same number went from 76.3 percent to
82.3 percent (6 percentage points).
30
Panel data is not available for DRC, which would allow us
to see the impact of migration to Kinshasa on relevant outcomes for the household. At In the
aggregate, we see the national average improving at faster pace than that of the capital. This is
consistent with the fact that inflows of people to Kinshasa affect Kinshasas social indicators.
In terms of gender discrimination Kinshasa is again better off compared to the national level.
Looking at the percentage of the population between 15 and 49 years old with complete
secondary education the male/female ratio is 2.0 at the national level. The same number is just
1.1 for Kinshasa. At an aggregate level, the indicators are very close among genders in
Kinshasa.

30
Using MICS (2001) and 1-2-3 Survey (2005).
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19 | P a g e
Figure 7 Percent of population with complete and incomplete secondary education
46.5
31.9
50.5
58.4
12.4
6.1
18.2
15.9
National male National female Kinshasa male Kinshasa female
% of 15-49 yr with incomplete secondary education
% of 15-49 yr with complete secondary education


Poverty and Healtb
In terms of access to health services Kinshasa has almost double the national rate of vaccinated
children. The doctor to population ratio is 3.6 times higher in the capital than the national
average, and the ratio of assistance personnel to patients is 1.5 in Kinshasa. The water
connection rate is almost 5 times higher compared to the rest of the country. These indicators
suggest that access to health care services in the capital is much better than for the rest of the
country and that further improvements will have only a marginal impact in poverty reduction.
Figure 8: Vaccination rates
30.6
17.6
57.8
3.7
% of children 12-23 mo currently
vaccinated against ALL childhood
diseases
vaccinated against NO childhood
diseases
National Kinshasa

Source: MICS-2 (2001)

For Kinshasa it is important to differentiate between services and outcomes. The province has
substantially better access to health services, yet health outcomes are not significantly better than
from the national average. For example, neonatal mortality rate is actually higher in Kinshasa
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20 | P a g e
than nationwide, infant mortality rate is lower than the national average but remains high, and
the percentage of children with birth weight below 2.5 kg is similar to the national average.
Table 6 : Infant Health Indicators
Kinshasa RDCongo
Percentage of children with birth weight <2.5 kg 7.2% 7.7%
Neonatal mortality rate (2007) 31 27
2007 Infant mortality rate (EDS) 73 92
2001 Infant mortality rate (MICS 2) 83 126
Ratio doctor-population 1/4.865 1/17.746
Water connection rate 52.8% 10.9%

Source: UNDP (2009) based on EDS 2007, DHS 2007 and MICS 2001

Despite better access to health services, health outcomes are not substantially better in Kinshasa.
This evidence suggests that factors other than access are affecting health outcomes. We can
speculate that this can be linked to joblessness combined with crowded dwellings with very basic
conditions, and a high number of migrants who may arrive in Kinshasa with existing health
problems.
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21 | P a g e

constraint on growth in Kinshasa.

Is access to finance tbe binding constraint
Is it lach of international financing
About 45 percent of the investment recorded by the national investment agency, ANAPI, is
located in the capital city (see Table 7). Apart from mining investments and reconstruction
projects in other provinces, most of the foreign investment is concentrated in Kinshasa in sectors
like telecommunications, construction, banking, retail and services. Even if Table 4.1 includes
domestic as well as international projects, it clearly indicates that the most attractive destination
in the country is the capital. Nearly half of all projects (44.5 percent) are based in Kinshasa, as
are the headquarters of foreign companies and numerous processing facilities. Most of the inter-
province projects (23.8 percent of all projects recorded by ANAPI) include Kinshasa and another
province in their investment.
Table 7 : The DRC: Private investment by Sector (2008)*
2003 2004 2005 2006 2007 2008** Total %
Kinshasa 39 49 51 46 53 46 284 44.5
Inter-Province 40 36 26 19 10 21 152 23.8
Katanga 15 6 12 9 18 25 85 13.3
Bas-Congo 8 8 5 5 5 8 39 6.1
Kasai-Oriental 7 2 3 4 2 1 19 3.0
Nord-Kivu - 2 - 5 4 3 14 2.2
Equateur 1 2 2 2 3 1 11 1.7
Kasai-Occidental 1 3 2 1 2 1 10 1.6
Bandundu 1 3 3 0 0 0 7 1.1
Sud-Kivu - 1 - 2 2 1 6 0.9
Maniema - - - 0 0 3 3 0.5
Total 112 114 104 96 100 112 638 100.0
Source: ANAPI
* Excludes mining and forestry
**Includes ongoing and completed projects
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22 | P a g e
Is it lach of domestic financing or poor intermediation
The financial sector and the banking industry in particular have improved in Kinshasa, after an
initial decline. Banks and microfinance institutions also concentrate most of their activities in the
city. Of the total 60.000 bank accounts (individual and corporate) in the country, a large
majority is concentrated in Kinshasa as are a number of micro-finance programs.
31
Eleven banks
and twenty-eight micro-finance institutions, most of them international (three of the commercial
banks are Congolese-owned) are present in the capitalmost bank transactions are done in
Kinshasa, while the provincial branches of the commercial banks serve primarily to operate
money transfers
32
. As the study will discuss below, a number of challengeshuman capital,
logistical as well as appropriability risksare the main reasons for such a concentration in the
banking sector.
Nonetheless, access to finance was listed as the second most constraining factor for firms in
Kinshasa
33
. Out of 298 firms in the capital, 86.9 percent did not seek to obtain any credit in
2006. Asked about their reasons, 11.6 percent firms reported that they did not need to borrow
funds; leaving nearly 78 percent of firms that might have needed funds but encountered difficulty
in securing them.
Table 8: Categorization of access to finance as an obstacle to development
Number %
No obstacle 61 20.5
Minor obstacle 16 5.4
Moderate obstacle 23 7.7
Major obstacle 77 25.8
Very severe obstacle 121 40.6
Total 298 100.0
Source: ICA Kinshasa (2006)
When analyzing the reasons for not applying for credit, the most cited are difficult bureaucratic
procedures and the assumption that credit would not be approved. It appears that the higher the
credit needs, the higher the opportunity costs. For the firms that did apply but were rejected, the
lack of adequate collateral (37.5 percent of the cases) was the most cited factor. The survey
findings are consistent with the large amount of collateral required in the DRC, often more than
100 percent, and often required to be held outside of the country
34
.

31
Isern, J., Crenn, T., Lhriau, L. and Masamba, R. (2007). Policy Diagnostic on Access to Finance in the
Democratic Republic of Congo (DRC).
32
Interviews by the authors. Kinshasa, DRC. 21 July 2009.
33
ICA (2006).
34
ICA (2006) and Interviews conducted by the Authors, Kinshasa, October 2009
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23 | P a g e
An alternate explanation for the results in Table 9 may be the low level of financial literacy of
firms in Kinshasa, which appears to be the main deterrent for a high number of applicants, rather
than the high costs of credit finance.
Table 9: DRC: Kinshasa: Reasons for not asking for credit during 2006
Number %
Application procedures 98 37.8
Did not think it would be approved 52 20.1
Other 37 14.3
No need for a loan 30 11.6
Interest rates are not favorable 21 8.1
Collateral requirements 14 5.4
Size of loan and maturity are insufficient 7 2.7
Total 259 100
Source: ICA Kinshasa (2006)
Ix lt Iow omextlc Suvlngx
Short- and long-term savings are higher in Kinshasa than in any other part of the country,
suggesting that savings can be mobilized. Table 10 shows this, contradicting the argument that
low domestic savings are a constraint to growth in Kinshasa. The ICA survey and the authors
own observations appear to corroborate this finding. Private firms appear to use cash flows to
finance investment rather than facing the bureaucratic hurdles of credit application.
Table 10: Short-term Vs. long-term deposits (thousands CDF)

Sight Deposits
(2005)
Term Deposits
(2004)
Kinshasa 120.044 19.947
Katanga 16.067 79,5
Kivu 9.479 220,7
Bas Congo 4.946 18,1
Kasa Oriental 1.242 4,9
Kasa Occidental 539 4,9
Orientale 533 n.a.
Bandundu 98 0,3
Equateur 98 0,4
Source: BCC (2007)
Compared to the DRC overall, Kinshasa has the largest banking system and the most
bankarized population. It also has higher savings and attracts the largest share of private
investments. These findings suggest that the bottlenecks in finance are more directly related to
low financial literacy, preference for cash flow financing, and financial behavior overall.
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24 | P a g e
Is it Ceograpby
Compared to the rest of the country, Kinshasa does not have mineral resources or good
agriculture land to exploit. The citys main asset is its geographic position. Located on the
shores of the Malebo Poola large area that marks the beginning of the navigable section of the
Congo Riverthe citys port receives raw materials from the interior to be processed for
national consumption and/or exports, and is also the entry point for imports into the DRC.
Well connected by river and road transportation, and serviced by the Inga Dam power plant, the
city growth coincided with an important industrial and manufacturing sector that started in the in
the 1920s until the early 1960s, and later collapsed in early-1990s after the lootings.
Given its past position as a developing industrial and manufacturing center, geography alone
cannot be considered as a binding constraint for Kinshasa.
Is Infrastructure tbe binding constraint
Transport and connectivity
Due to its high degree of urbanization, Kinshasa has the best ratios of access to basic
infrastructure in all of the DRC, as measured in terms of distance to key infrastructure facilities
(see Table 11 below.) Almost all of Kinshasas population has access to social and economic
services within a short distance.
Table 11: Kinshasa: Households with access to infrastructure at a reasonable distance

Market less
than 5km away
than 2km away
Hospital less
than 10km
away
Kinshasa 98.6 99.6 99.6
Bandundu 58.5 50.9 51.3
Orientale 71.5 68.4 52.4
Nord Kivu 84.2 86.6 75.6
Sud Kivu 88.8 85.7 70.1
Katanga 74.1 63.9 53.9
Kasa Oriental 90.7 95.6 85.2
Source: Enqute 1-2-3 (2004-2005)
In terms of connectivity within the city and between the city and the rest of the country, the
situation is not different from that of other provinces. Indeed, less than 11 percent of all the
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25 | P a g e
roads in the capital are paved
35
and all-weather roads are virtually nonexistent
36
. Even within the
limits of the capital, only 24 km out of 362 km are paved (or about 6.6 percent of the total road
network, as Table 12 shows.)
Table 12: Kinshasa Ville: Paved and non-paved roads
Type Km
City Roads
N'djili-Yanda Paved 24
Yanda-Mvululu Dirt 37
Yanda-Nsanda Dirt 58
Mongata-Limite Bandundu Dirt 25
N'sele-Maluku Dirt 113
N'sele-Carrefour Mongata Dirt 40
Kinshasa(Ville) - Echangeur Ndele Dirt 31
Kinshasa - Echangeur - Cite Verte- Limite Bas Congo Dirt 34
Total 362
Provincial Roads going through the capital
N'djili-Yanda Paved 24
Yanda-Nsanda Dirt 13
Nsanda Maluku Dirt 37
Total 74
Source: Monographie de la Ville de Kinshasa (2005)

Urban transportation services are an exception, as they are overwhelmed as easily observed in
Kinshasa. Nevertheless, transportation was ranked only as the sixth most severe barrier (out of
12 barriers to investment
37
) by private firms in Kinshasa. According to the firms surveyed,
energy, the informal economy, and political and economic risks are more active barriers to
private investment than transportation
38
.
The data shows a sharp increase in river transport from Bandundu, which has more than tripled
since pre-1996 levels. Connectivity is satisfactory between Kinshasa and Bandundu, and relies
on river navigation on the Congo and the Kasa Rivers.) In fact, during the wars Bandundu
continued to supply Kinshasa with food.

35
Monographie de la Ville de Kinshasa (2005).
36
Tollens (2002).
37
ICA (2006).
38
Two hypotheses may help explain this discrepancy as to why transportation is not considered a binding constraint.
Firstly, the survey may reflect a sample bias as most transport-intensive companies have integrated and do no longer
rely on public transport infrastructure. Secondly, trade and production in Kinshasa are most dependent on river
transport and rail. Other than the road Kinshasa-Matadi, no other roads in the province are vital trade links.
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26 | P a g e
The trade links between Kinshasa and Matadi, the capital of Bas-Congo, are vital to the national
economy, as a whole. A newly rehabilitated road serves the key infrastructure axis Matadi-
Kinshasa where all cargo trade transits via the ports of Matadi and Boma to Kinshasa and
beyond. The road, however, is the only infrastructure link, as the railway link between the ports
of Matadi and Kinshasa remains out of operation, resulting in a significant bottleneck to scaling-
up the economy. All private operators interviewed in Kinshasa and Matadi point to the rail link
as the most potentially important piece of transport infrastructureyet ironically consider it the
weakest link in current networks serving the economies in the western provinces of the
country
39
.
Significant gain can be made to business transactions through investment in more efficient and
cost-effective transport networks, especially the establishment of railways and the improvement
of river transport. Road transport infrastructure is highly problematic, though it does not pose a
binding constraint because of the availability of river transport.
Flectrlclty
In Kinshasa almost one-half (45.6 percent) of the firms that were surveyed by the ICA list
electricity as the most severe constraint to growth. As much as 78 percent indicates electricity as
a severe or very severe obstacle
40
. The study will look at sector activity and size, to discuss
whether electricity is disproportionately scarce as per the HRV framework.
Table 13: Kinshasa: Electricity as an obstacle for growth
Number %
No obstacle 25 8.4
Minor obstacle 20 6.7
Moderate obstacle 20 6.7
Major obstacle 78 26.2
Very severe obstacle 155 52.0
Total 298 100.0
Source: ICA (2006)
Note: Data considers only firms based in Kinshasa

The share of households access to electricity in urban Kinshasa is 35 percent, by far one of the
highest in the country
41
. Electricity coverage, however, is low in absolute terms if one considers
that the hydro-electricity dam of Inga (Inga I and II) has the potential to supply electricity to the
Congo and far beyond in Africa. In fact, industrialization and economic activity began peaking
around 1972 after the development of IngaI, strongly correlating electricity with industrialization

39
Consider for example the new cement plant the Group Forrest project to build in the next two years in Bas-Congo
with a 2 000 tons annual capacity. This single operation will need 500 heavy trucks per day on the road in order to
move its production. Interviews by the authors. Lubumbashi, DRC. 5 August 2009.
40
ICA (2006).
41
Government of Kinshasa. 2005.
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27 | P a g e
and growth. Today, electricity is constrained in supply as well as in capacity, as indicated by
the very high percentage of firms (96 percent) reporting power outages in 2005 (see Table 14).

Ioohlng for cumelx unJ hlppox

Applying the HRV framework, the authors will use its camels-and-hippos metaphor to help
assess how bindingand to whomis the lack of reliable energy provision. Consider a sector
that is intensive in energy infrastructure such as industry, compared to one that is less energy-
intensive such as services. Today, industry and manufacturing contribute just a small share of
the citys GDP, while services and agriculture represent larger contributions and are the most
dynamic sectors. Services and agriculture are less intensive in energy consumption. Indeed, the
services sector tends to be more human capital-intensive than manufacturing, and as discussed
above, human capital is not scarce in Kinshasa. Services and industry are affected equally by an
under-developed financial system, as well as by appropriability risks. A key difference between
the services and manufacturing sectors is that the former can operate with on-site electricity
generation (and with smaller quantities), whereas manufacturing industries require permanent
and reliable supply from the power grid. As the national growth diagnostics study and anecdotal
evidence further suggest that the imports and the use of diesel generators have spiked, with 40
percent of the firms in Kinshasa report owning a generator (see Table 14). We consider this
finding to be indicative of the fact that the services industry has been able to remove the energy
constraint by adapting, as camels would do in their environment of resource scarcity.

Table 14: Kinshasa: Selected Indicators Electricity
Experienced power
outage during 2005
Own/Share Generator
Yes 95.9% 40.3%
No 4.0% 59.6%
Total 100% 100%
Source: ICA
The evolution and adaptation of the services industry is further seen below in its capacity to
attract new investmentsand to grow as a result. Table 4.9 presents the sector aggregates for
projects completed or under execution in Kinshasa under the tax incentives sponsored by
ANAPI. Over 60 percent of the new investments are allocated to the services industry, while
only 20 percent of investments went to the manufacturing sector, mainly in construction
materials, including plasticsand none to industrial firms.

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28 | P a g e
Table 15 : Kinshasa: Private investment by Sector (2008)
Sector 000 USD
% of Total Private
Investment*
Hotels 93.425.914 34.2
Manufacture 54.865.119 20.1
Telecommunications 46.391.562 17.0
Food Processing 25.277.724 9.3
Financial Services 16.728.018 6.1
Agriculture 10.143.382 3.7
Timber 9.126.983 3.3
Infrastructure 8.827.744 3.2
Other Services 5.372.530 2.0
Road transport 2.883.200 1.1
Total 273042176 100.0
Source: ANAPI
*Includes ongoing and completed projects.
Table 15 shows that non energy-intensive sectors (i.e. services and telecommunications,
particularly mobile telecommunications) are attracting foreign private investment and are a
growth industry in Kinshasa. We may speculate that the services industry is more nimble at
dealing with the poor business climate (tracasseries.) As it has done with the binding
constraint of energy, the services industry has circumvented the constraint of investment finance,
and adapted to scarcity. According to the HRV framework, camels (i.e. services) can survive in
an environment without resources (i.e. infrastructure and investment) better than hippos (i.e.
industry and manufacturing.)

Electricity provision is the most constraining factor for the economic activity in Kinshasa,
overall. By sector, the services industry has shown the most resilience in adapting to an
environment of scarcity in electricity and infrastructure. The primary sector has mainly moved
into informal subsistence agriculture and black market commerce.

Is it buman capital
Human capital is not a binding constraint in Kinshasa. The level of education in the capital is the
highest of all provinces in the DRC (see Figure 9). Almost one-half (46.4 percent) of all college
graduates in the country live in Kinshasa. Firms are able to recruit a qualified workforce: up to
37.6 percent of managers have post-graduate degrees, 21.5 percent a college education and 38.6
percent secondary or vocational training
42
.

42
ICA (2006)
165
29 | P a g e
Figure 9: Stock of Human Capital
0
2
4
6
8
10
12
DRC*
Kinshasa


From a growth analysis perspective, the important question is whether the stock human capital is
sufficient to satisfy demand. The analysis of returns to education suggests that the educational
premium is higher in Kinshasa than in the rest of the DRC (7.1 percent vs. 6.2 percent), although
not significantly higher. A lower than expected premium signals that the educated workforce in
Kinshasa is large compared to the demand, which results in firms not needing to compete by
offering higher wages to well-educated workforce.
Figure 10 provides further indication of the premium associated with different levels of education
in Kinshasa compared to the rest of the DRC. Firstly, the wage premium for higher education is
slightly lower in Kinshasa compared to the rest of the DRC (0.9 vs. 1.0 respectively). This is
consistent with the large supply of college-educated people in the capital. The situation,
however, is inverted for secondary education, as the return for completed secondary education is
higher for Kinshasa than elsewhere.
Figure 10 Returns to schooling by education levels
0.42
0.60
1.24
0.29
0.46
0.93
Primary Secondary Higher
Urban DRC Kinshasa

*Considering the last completed level
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30 | P a g e

The skills premium in Kinshasa is not significant vis a vis other provinces. As Figure 11 shows,
however, skilled and semi-skilled workers in Kinshasa earn salaries that are just 50 percent
higher than unskilled workers, whereas the gap seen in the rest of the DRC is 75 percent.
Kinshasa has a larger supply of skilled and semi-skilled workers, but their wage premium
compared to unskilled workers is lower in Kinshasa compared to the average of the DRC. This
would suggest that labor supply of both skilled and unskilled workers is not the binding
constraint to economic growth in the capital-province.
Figure 11: Percent of skilled workers and salaries for skilled and non-skilled workers
$ 13,335
$ 24,471
$ 7,645
$ 16,553
51.1%
83%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0
5000
10000
15000
20000
25000
30000
DRC Kinshasa
Skilled and semi-skilled un-skilled % of skilled and semi-skilled workers in the province


The data demonstrates that the supply of educated workers is not scarce in Kinshasa relative to
the demand. Kinshasa has by far the most educated labor force in the country, in large enough
supply to meet the demand of a large services (private and public) sector. In this equilibrium,
wages and supply allow firms to hire well-educated workers without the need to compete with
each other by raising wages. Therefore, human capital is not the most binding constraint to
private investment in Kinshasa.
If human capital were a constraint, one would expect to see a much larger education premium
and a premium for skilled workers more in line with the national average. Given the large
supply of educated workers and the low premium for high skills, we can conclude that lack
of human capital is not the binding constraint for the economy of the province.
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31 | P a g e

Is it Low Appropriability
In the HRV model, low appropriability is defined as a set of constraints that would prevent a
hypothetical investor from entering the market and/or from optimizing the returns to investment.
Appropriability is low when: i) government failures occur and/or ii) market failures are such as
to deter the investor from investing in a given country at a given time.
Are microrishs binding
As the authors will discuss in the national growth diagnostics study, fiscal issues have been a
cause for concern for provincial governments across the country. An ambitious decentralization
effort launched in 2007
43
now stands at a delicate juncture, as progress towards fiscal
decentralization has stalled. Fiscal revenue transfers (rtrocession) from the central authorities
have fallen short of set thresholds and often put the provinces at odds with the central
Government.
Overflxcullzutlon
The slow pace of the implementation of the fiscal decentralization process has left the provinces
struggling for predictable revenues. The rtrocession scheme by which the central authorities
should cede a fixed percentage of revenues collected by the provinces has not worked, thus far.
Moreover, the division of roles and responsibilities between the competencies of the national
fiscal agencies (rgies) and the provinces has been a source of further conflict
44
. Specifically
for Kinshasa, expected fiscal revenues for 2008 were transferred with a six-month backlog. Lack
of consultation in the budget planning process, particularly large investment budgets that are still
under the prerogatives of the central Government, is another source of conflict.
As a result of the decentralization, the provinces have exercised their prerogatives as legal
entities by creating new tax agencies, in effect adding a layer of red tapeand most often
corrupt and predatory practicesto doing business at the province level. Kinshasa was actually
the first province to establish a provincial tax collecting agency, the DGRK, as well as sector-
specific agencies for urban management
45
. In 2007, the budget for the city-province totaled US$
20 million (own funds + central transfers.) In 2009, the budget increased to US$ 60 million
46
.

43
44
Interviews by the authors on condition of anonymity. Kinshasa, DRC. 30 October 2009.
45
Division Gnrale des Recettees de la Province de Kinshasa. Interviews by the authors. Kinshasa, DRC. 29-30
October 2009.
46
The 2009 budget was US$ 60 million, of which $19M was from the province and $36-38M from the central
Government. Revenues generated by the province consist mainly of fees such as automobile licenses and
registration fees.
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32 | P a g e
Private sector firms invested in forestry report between 165 and 172 different taxes being levied
for the timber sector
47
. According to one industry advocate, the introduction of the new forestry
law in 2002 contributed to a jump in taxes levied on the industry from $400 to $ 100,000 over
five years
48
. The uncertainty is further heightened by arbitrariness and selectivity in the
application of the tax law. As one actor said, all is negotiable and subject to interpretation.
The plethora of fiscal taxes has another perverse effect: that of discouraging private
entrepreneurs to operate in the formal sector. As one such entrepreneur said, you try to stay
under-ground and invisible for the first few years, otherwise your business will never take off.
As two entrepreneurs put it, this means, no billboard, no fresh paint on your front gate,
otherwise they [the tax inspectors/collectors] will come sniffing
49
.
Although the study did find consistent evidence that taxes and labor regulations constrain
growth in todays business environment, the lack of clarity and certainty in the fiscal and
regulatory framework in turn encourages evasion and corrupt practices. Interviews with
private investors in the province and elsewhere point to a series of symptomatic issues: although
the marginal tax rate may not be higher in the DRC than in other countries in the region, the
investment climate is fraught with uncertainties and a degree of arbitrariness. As a province,
Kinshasa suffers from this national constraint even more due to its proximity to the central
Government.
Are macrorishs binding
The security of assetsand their ownershipis cited as a constraint to private investment. After
SEBO lost thousands of heads of cattle that were looted by armed forces in 1990-1991, it filed a
claim to the Government. That claim has remained unanswered to date
50
. A large private cattle-
raising farm told of new taxes that were imposed because their cattle were drinking water from
rivers on the farmland
51
. The same company was charged taxes imposed by the mining code
after using gravel to repair a road
52
. In another instance, timber companies were summoned to
pay taxes to the Ministry of Culture allegedly because the trees represented a cultural national
legacy. Another investor was holding off on developing the family-owned estate, for fear that it
might be confiscated because of the discovery of minerals further away in the area
53
.

47
Interview by the authors on condition of anonymity. Kinshasa, DRC, 27 October 2009. Also interview. Kinshasa,
DRC. 25 July 2009.
48
Interview by the authors. Kinshasa, DRC. 25 July 2009
49
Interview conducted by the authors. Kinshasa, DRC. 30 July 2009, and Bukavu, DRC. 18 October 2009.
50
Interview. Kinshasa, DRC. 30 July 2009.
51
52
The tax collection agency alleged that the gravel contained laterite, which the agency considered as a mineral.
53
169
33 | P a g e
However, measures to improve the business climate would go only so far in attracting new
investors as confidence that ownership of assets will be guaranteed and protected is eroded. This
constraint, which is prevalent at the national level, applies strongly to firms located in Kinshasa.
Ix lt xelfJlxcovery
Kinshasa has indeed been unable develop new industries, or revive its old industries. But
we consider this fact related to constraints different from self-discovery. The city could
grow just by reviving its defunct firms in the secondary sector, on which it had comparative
advantages. Moreover, the entrepreneurial capacity of the locals is evident through the vitality of
a vibrant informal sector.
The importance of agriculture, the level of informality in the economy and the high
unemployment and underemployment rates all indicate that Kinshasa is not realizing its potential
and taking advantaging of its endowments. The province has not been able to rebuild its
industrial and manufacturing sectors to the scale of pre-1991, or to attract any new investment
into these sectors. Its economy is concentrated in the tertiary sector (75 percent of provincial
GDP), due to the presence of the State administrations and the large international presence of the
UN, NGOs and aid community. Though Kinshasa attracts the social headquarters of many
foreign industrial companies, the province has yet to leverage that geographical advantage into
productive industrial activities and regain its economic role to boost growth and job creation.
The province has yet to differentiate itself from other provinces, and offer the regulatory and
financial incentives (by way of special investment/economic zones or one-stop shops) that
would attract investors directly to the province, and help it leverage the economic power of
foreign investments. The provincial administration is developing innovative urban management
projects, in the area of waste management funded through carbon-offset credits
54
.
The provinces early experiments of public-private partnerships in urban management projects,
such as co-management of the commune of Ndjili with the Japanese JICA and of two other
communes with the Cooperation Belge and the EU in the area of water/sanitation, could offer a
promising and innovative PPP model for generating future jobsand growth. If something
similarly innovative could be articulated for energy generation and distribution, it could have a
significant impact in economic activity.
Ix lt coorJlnutlon fullurex
Private investors in the timber and livestock industries and industial shipbuilding are highly
vertically integrated. As one investor said, you have to be integrated to control the risks of
Government failure. Other investors noted that up until the 1970s, the national transport
company ONATRA could be relied upon for the river trade to Bandundu, Bas-Congo and
Orientale. Today, most river transport firms operate their own ships and tugboats to push the

54
Interview with Governor Andre Kimbuta, Governor of Kinshasa. 30 October 2009.
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34 | P a g e
river barges. Also, several private companies operate in the transport business, both land and
water transport, and the capital is very well served in this regard.
Kinshasa has to solve many other issues before considering market coordination as a policy
priority. And as suggested by anecdotic evidence, most of the coordination failures can be
attributed to Government interventions (or omissions) and not to malfunctioning markets.
Conclusion
Kinshasa is endowed with many positive factors: high human capital, high access to health care
services, a comparatively strong infrastructure network combining multiple nodes of rail, road,
air and river and high connectivity. Despite these, the province has failed to find efficient ways
to leverage its previously successful industrial and manufacturing base.
The provinces once powerful industrial sector is currently constrained by serious infrastructure
and capacity problems. The lack of a reliable electricity provision due to the current
deterioration of the Inga power station and an inefficient distribution network generate losses.
Further, manufacturing equipment is obsolete and capital investment has stalled since the
lootings of 1991 and 1993. The recent rise in private investment flows to services and
telecommunications further suggests sector-specific constraints in manufacturing and industry.
Overall, electricity shows disproportionate signals of scarcity, and as such constitutes the most
binding constraint.
Government failures are a severe limiting factor for private investment in Kinshasa, given its
proximity to the Governments reach. For new investors, uncertainty and an adverse investment
climate reduce the appropriability of private returns. Looking ahead, the challenge for the
province of Kinshasa will be to differentiate itself vis--vis other provinces and neighboring
countries vying to attract the same foreign investors
55
.
Kinshasa is currently suffering from an accelerating population growth rate due to higher birth
rates, lower death rates and massive population inflows due to displacement and war. Poverty in
Kinshasa appears to be linked to joblessness and lack of income generation. With high
unemployment and under-employment rates, Kinshasas priorities must be to create urban jobs
both for the poor and for its large supply of skilled, educated workers.

55
Angola (agriculture), Congo-Brazzaville and Gabon (timber).
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35 | P a g e
Policy Issues
Policy challenges in Kinshasa differ from those of other provinces. As an urban metropolis,
Kinshasa must generate a safe investment climate and opportunities for job creation in the
secondary and tertiary sectors. Kinshasa must develop sound industrial policies and undertake
an aggressive campaign to attract investment, with a view to resolving the existing bottlenecks of
basic infrastructure.
However, without first putting in place infrastructure solutions, policies for industrial and
investment promotion will not succeed. A proposed option would be to create special economic
zones providing energy, transportation infra- and super-structure coupled with a package of real
estate and fiscal incentives to attract a critical mass of investors. Insulating private investment
from appropriability risks and infrastructure limitations, such a special economic zone would
help new investors navigate the arcane central and provincial bureaucracies.
Kinshasa will also benefit from the development of its surrounding and inland provinces. Since
the resolution of many of the constraints faced by the provinces relies on national decisions taken
in Kinshasa, obvious synergies would result from increasing connectivity between the capital
and the countrys food-producing provinces. Since Kinshasa relies on the food production of
surrounding provinces to feed its growing population, helping neighboring provinces improve
productivity and access to finance would contribute to reducing Kinshasas costs for inputs and
consumption goods.
Harassment and corruption are among the most binding constraints for those doing business in
the DRC. Measures to reduce the occurrence of arbitrary or predatory application of regulatory
frameworks would be an affordable step towards greater transparency, for example with
electronic payments to help control tax evasion, or a single flat-rate tax on businesses to simplify
the fiscal regime. Both de jure and de facto, however, the provincial and central administrations
appear to be moving away from simplification, creating instead their own tax agencies and in
effect adding further layers of red tape. This trend must be reversed.

172
36 | P a g e
References
capacits.
Banque Mondiale, 2006. Document de Stratgie de la Croissance et de la rduction de la
Pauvret de la Ville de Kinshasa.
FAO. 2008. Executive Brief: Democratic Republic of Congo Comprehensive Food Security and
Vulnerability Analysis (CFSVA) / 2007- 2008.
Gouvernement Provincial de Kinshasa, 2007, Programme du Gouvernement Provincial de
Kinshasa. 2007-2011.
Hausmann, R., & Klinger, W., 2008, Growth Diagnostic: A Mindbook.
Hausmann, R., Rodrik, D., & Velasco, A. 2004. Growth Diagnostics. John F. Kennedy School of
Goverment, Harvard University .
IMF. 2006. Poverty reduction Strategy Paper.
Isern, J., Crenn, T., Lhriau, L. and Masamba, R., 2007. Policy Diagnostic on Access to
Finance in the Democratic Republic of Congo (DRC)
Kapagama, P, and Waterhouse, R., 2009. Portrait of Kinshasa: A City on (the) Edge. Crisis
States Working Papers Series No.2.
Ministre du Plan, Rpublique Dmocratique du Congo, 2005, Monographie de la Ville de
Kinshasa.
Tollens, E, 2002. Food Security in Kinshasa: Coping with Adversity. Working Paper 2002/66,
Katholieke Universiteit Leuven, Faculty of Agricultural and Applied Biological Sciences.
UNDP. 2009. Province de Kinshasa: Pauvret et Condition de Vie des Mnages.
173

Orientale Province,
DRC

2009
Alfie Ulloa, Felipe Kast, Nicole Kekeh

01/08/2010
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2 | P a g e

Abbreviations and acronyms........................................................................................................... 4
1. Introduction ............................................................................................................................. 8
1.1. Orientale: At a glance ....................................................................................................... 8
1.2. Current Composition of GDP ......................................................................................... 10
1.3. Describing Growth Collapse .......................................................................................... 11
1.3.1. Conflict: The externalization of local disputes ....................................................... 12
1.3.2. The collapse of the textile sector ............................................................................ 13
1.3.3. The collapse of the non-textile sectors.................................................................... 14
2. Poverty Profile ....................................................................................................................... 16
2.1. Urban Poverty ................................................................................................................ 16
2.2. Poverty and human capital ............................................................................................. 17
2.3. Poverty and education .................................................................................................... 17
2.4. Poverty and gender ......................................................................................................... 18
2.5. Poverty and Health ......................................................................................................... 19
3. Applying the HRV Growth Diagnostics Framework ............................................................ 22
3.1. Is access to finance the binding constraint? ................................................................... 22
3.2. Is it lack of social returns to economic activity? ............................................................ 23
3.2.1. Is it Geography? ...................................................................................................... 23
3.2.2. Is infrastructure the binding constraint? ................................................................. 24
3.2.3. Is it Human Capital? ............................................................................................... 29
3.3. Is it low appropriability? ................................................................................................ 31
3.3.1. Government failures................................................................................................ 32
3.3.2. Is it coordination failures? ...................................................................................... 33
3.3.3. Is It Self-discovery? ................................................................................................ 33
4. Conclusion ............................................................................................................................. 34
Policy Issues .............................................................................................................................. 35
References ..................................................................................................................................... 36
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3 | P a g e

Table 1: Orientale: GDP Composition 2006-2008 Constant 2006 Prices .................................... 10
Table 2: Companies Operating in Orientale in 1991 .................................................................... 11
Table 3: Health Outcomes in Orientale ........................................................................................ 19
Table 4: Congo DRC: Private Investment Projects (2003-2008) ................................................. 22
Table 5: Credit for non-agricultural family enterprises ............................................................... 23
Table 6: Province Orientale: Road Infrastructure (2005) ............................................................ 25
Table 7: Orientale: Household access to infrastructure ............................................................... 26
Table 8: Congo DRC: Access to Land .......................................................................................... 26
Table 9: Orientale: Hydro-electricity ............................................................................................ 27
Table 10: Poverty Incidence by level of Education ...................................................................... 29
Table 11: Orientale vs. the DRC: Employment Structure ............................................................ 30
Table 12: DRC Access to land and status of workers (%) ............................................................ 32

Figure 1: Map of Province Orientale .............................................................................................. 9
Figure 2: Province Orientale: Map of Conflict ............................................................................. 13
Figure 3: DRC: Coffee (exports) and cotton (production), several years (in tons) ...................... 15
Figure 4: Poverty........................................................................................................................... 16
Figure 5: Poverty Levels by Education of the Head of the Household ........................................ 17
Figure 6: Net enrollment rates for 6-11 yrs: Orientale vs. National (%) ...................................... 18
Figure 7: Complete and incomplete secondary education (%) ..................................................... 19
Figure 9: Children vaccinated ....................................................................................................... 20
Figure 10: Human Poverty Index .................................................................................................. 21
Figure 11: Orientale and the DRC: Stock of Human Capital by age cohorts ............................... 30
Figure 12: Orientale vs. the DRC: Share of qualified workers and salaries ................................. 31
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4 | P a g e
ANAPI Agence nationale pour la promotion de linvestissement
CDF Congolese Franc
FAPC Forces armes du peuple congolais
FARDC Forces armes de la RDC
FNI Front nationaliste et intgrationaliste
NGO Non-Governmental Organization
PUSIC Parti pour l'unit et la sauvegarde de l'intgrit du Congo
REGIDESO Rgie de Production et de Distribution d'Eau et d'Electricit
SOTEXTI Socit des Textiles de Kisangani
UN United Nations
UPC Union des patriotes congolais

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Achnowledgements

1

1
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6 | P a g e
Executive Summary
2

The province of Orientale presents perhaps the toughest of challenges to economists looking
at interventions that would help re-start the engine of growth and reduce poverty at a province
level.
The various measures of poverty point to a more dramatic situation in Orientale than in
the rest of the country. Almost all sectors active in the past in the Province no longer perform
at the required level to re-start the economy.
Due to its remoteness and the conflict situation, the province has been left to descend into a
prolonged state of neglect, and even decay. Once known as Kisangani Boyoma La Belle, the
capital today greets visitors to the province with the sight of abandoned but once beautiful
administrative buildings from the colonial time, the sprawling central post office headquarters
were Patrice Lumumba launched his political movement, the rusting facilities in the port zones,
the now-defunct dealerships of Renault and retail stores and warehouses of expatriate traders
Belgian, Greek, Indian and Portuguese. Kisangani today looks wrecked from the wars and the
mass lootings (grands pillages.) Apart perhaps from Sarajevo, Kisangani holds the sad and
dark distinction of having been the focus of a resolution by the UN Security Council directed at a
single city, and calling for an immediate end to the bloodshed in 2000.
The province has been unable to sustain its economy and to diversify. Cotton farming was
imposed by an act of Government and the textile industry was brought to the province for
political reasons. The provinces textile industry today has to self-discover and re-invent a
new business model that would be viable in the age of globalization and cutthroat competition
from cheap Chinese textile. Coffee faces a similar challenge. Only timber and gold seem viable
at present time.
There is evidence of inner migration due to security issues. Based on UN estimates, there may
be around 540 000 currently internally displaced people (IDPs) in the region. These population
movements are putting pressure on urban centers, which report higher poverty incidence levels
well above the national average (83.4% versus 61.5%.) Similarly, urban poverty (83.4%) is
markedly higher than rural poverty (73.7%
3
.) High poverty does not appear to be causing
pressure on food security, as Orientale is the fourth safest province in Congo in food security,
with 5.1% of its population in situation of severe food insecurity.
With poverty incidence higher among the educated, Orientale is in danger of being caught in a
human capital trap, whereby the level of education decreases because of the absence of
opportunities for the more educated, which in turn prevents the economy from moving to more
high skilled high productive activities. Outflow migration of skilled workers, already high due to
the war, will increase because of lack of opportunities.

2
3
UNDP (2009).
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7 | P a g e
Insecurity and lack of infrastructure pose the most severe constraints to growth and
industrial agriculture. Applying the HRV framework, the study finds that the armed conflict in
Orientale is currently affecting appropriability of returns to economic activities in those zones
under military control. In secure areas, the lack of investment in infrastructure constraints the
economy by reducing the returns to private investment. Long-term peace and reconstruction
efforts should thus be framed within the larger context of State failure.
Orientale will need a joint and coordinated effort from private and public actors. Self-
discovery of new sectors and greater competitiveness remain the largest challenges for
Orientale, in particular in creating urban jobs. The capital of Kisangani will not regain its once
pre-eminent role as a transit and trading hub along the Congo River until the national
transportation system is restored and the economies of Katanga and Maniemaas main trading
partnersand Kinshasaas main consumercan restart.
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8 | P a g e
Introduction
Urientale At a glance
Orientale DRC
Population growth (annual %) Kisangani: 5.5 2.9
Interior: 2.9
Literacy rate, youth female (% of females ages 15-24) 63.1
Literacy rate, youth male (% of males ages 15-24) 78.0
HDI (2006) 0.60
Poverty (%) 75.5 71.3
Source: World Development Indicators, DSRP 2005, INED 2002, UNDP, EDS RDC 2007, 1-2-3 Survey
4

*1995-2003

As the largest province in the DRC, Orientale occupies an area of 503.239 km, which is 22
percent of the countrys total landmass. Orientale counted a population of 6.6 million, 12
percent of total population, in 2005. About 80 percent of the population lives in rural areas, and
with 3 in 4 households owning land, Orientale has DRCs highest land ownership ratio. The
average household size in Orientale is 4.7, lower than the national average of 5.3. The
dependency ratio, showing proportion of 0-14 and 65+ year old inhabitants to 15-64 year old
inhabitants, is lower at 1.2 than the national average at 1.7. The province borders the Central
African Republic and Sudan to the north, the provinces of Nord Kivu, Maniema, Kasa Oriental
to the south, and Uganda to the east, and Equateur to the west. The capital of the province,
Kisangani
5
counted 895.880 inhabitants in 2005, with a lower population density rate than other
DRC provincial capitals, at 450 inhabitants per km. In the past, Isiro and Bunia were also
important urban centers, among the richest cities in the country. After the economic chaos in the
aftermath of Zarinization and decades of war, these cities today lay in ruins, much as does
Kisangani. The capital city suffered from periods of political upheaval in the 1960s and 1990s,

4
5
Kisangani was formerly known as Stanleyville. Kisangani is located where the Lualaba River becomes the Congo
River north of the Boyoma Falls (Stanley Falls.) It is the farthest navigable point upstream from Kinshasa, on the
bend of the Congo River.
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9 | P a g e
which caused severe economic difficulties. In 1997, Kisangani was the scene of the decisive
battle in Laurent-Dsir Kabilas successful rebellion against the Mobutu regime.
The new Constitution of May 2005 divided the province into four new provinces. Each of the
current districts, Tshopo (main city Kisangani), Ituri (main city Bunia), Haut-Uele (main city
Isiro) and Bas-Uele (main city Buta) will become a new province.

Figure 1: Map of Province Orientale

Source: UNDP (2009)
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The primary sector is by far the largest contributor to Orientales GDP (61.9% in 2008),
followed by the tertiary sector (30.0%) and the secondary sector (7.5%.) The three main sectors
of Orientales economy accumulated real output gains over percent between 2006-2008, with the
secondary and the tertiary sector gaining more than 10% over the period Only mining, electricity
and non-trade services showed real output losses. Firstly, while the value of the mining sector
plummeted between 2006 and 2008, the sharp increase in the international prices of gold led to
speculation on projected profits in the mining sector and attracted large amounts of investment.
The investments in infrastructure and extraction in turn yielded a real output gain of 121% in the
construction sector in 2008. The province performed poorly in terms of electricity generation,
which is greatly constrained despite the provinces natural endowments in hydro-energy.
Table 1: Orientale: GDP Composition 2006-2008 Constant 2006 Prices

2006 2007 2008 Accumulated
Growth
06-08
Millions
CDF
% of
GDP
Millions
CDF
% of
GDP
06-07 %
change
Millions
CDF
% of
GDP
07-08 %
change
I. Primary Sector 347.847 63.0 352.971 62.5 1.5 369035 61.9 4.6 6.0
I. Agriculture, fishing
and breeding
333.098 60.3 339.797 60.2 2.0 356.238 59.8 4.8 6.8
A. Agriculture 293.446 53.1 300.214 53.2 2.3 309.382 51.9 3.1 5.4
B. Fishing 23.365 4.2 28.354 5.0 21.3 29.821 5.0 5.2 26.5
C. Breeding 16.286 2.9 11.228 2.0 -31.1 17.034 2.9 51.7 20.7
II. Timber 9.150 1.7 9.345 1.7 2.1 9.580 1.6 2.5 4.6
III. Mining 5.598 1.0 3.829 0.7 -31.6 3.216 0.5 -16.0 -47.6
II. Secondary Sector 40.631 7.4 38.983 6.9 -4.1 44.694 7.5 14.7 10.6
I. Industrial Production 31.225 5.7 33.643 6.0 7.7 35.291 5.9 4.9 12.6
II. Electricity
Production
1.029 0.2 1.039 0.2 0.9 917,2 0.2 -11.7 -10.8
III. Water Production 1.111 0.2 1.016 0.2 -8.6 1.224 0.2 20.5 11.9
IV. Infrastructure 7.265 1.3 3.285 0.6 -54.8 7.262 1.2 121.1 66.3
III. Tertiary Sector 161.709 29.3 169.755 30.1 5.0 178.594 30.0 5.2 10.2
I. Trade 144.400 26.1 158.934 28.2 10.1 170.499 28.6 7.3 17.3
II. No Trade 17.309 3.1 10.821 1.9 -37.5 8.095 1.4 -25.2 -62.7
prices
552.263 100.0 564.437 100.0 2.2 596.126 100.0 5.6 7.8
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Describing Crowtb Collapse
Throughout the 1980s and up until the lootings in the early 1990s, Orientale was the third
most industrialized province in Congo after Kinshasa and Katanga. The province exported
gold and coffee while locally made textiles, sugar and the palm oil processing were consumed
locally. These industries helped the cities of Isiro and Bunia flourish; and the city of Kisangani,
with its then busy port, was the third most important in the country after Kinshasa and
Lubumbashi. Industry in the province has suffered from due to insecurity since the 1991 and
1993 lootings and the ensuing military conflict.
The lootings in 1991 and 1993 marked the inflection point in Orientales economic evolution.
The damage caused to the industrial and manufacturing facilities in the cities, and to the
plantations and mines in the rural areas proved devastating. A number of factors led to the
collapse of industrial capacity, notably the lack of fiscal capacity of the State to re-invest in
strategic industries, a destroyed financial system and the permanent continued presence of armed
groups. The collapse of the processing and manufacturing industries in turn caused the demise of
the small providers of inputs, including coffee, cotton, palm oil and artisanal mining. By the
mid-1990s, the province was already in a very precarious economic situation. Conflict in the
second half of the 1990s essentially erased an already impoverished economy.
By 2006 most of the industries located in Kisangani had filed for bankruptcy
6
(Table 2). On the
supply side, a lack of both raw materials and financing had affected production in the textile,
coffee and palm oil industries. The coffee sector was affected first by conflict in the 1990s and
then by diseases that dramatically reduced productivity, crippling the sector. Similarly, the palm
oil industry suffered from a trend of de-capitalization and disinvestment. Abandoned and aged
palm tree plantations can be seen for kilometers upon kilometers on the road from Kisangani to
Wanie-Rukula
7
. On the demand side, the dramatic decrease in the purchasing power of
Congolese people negatively affected the domestic market.
Table 2: Companies Operating in Orientale in 1991
Company Sector
SOTEXKI Textile
CODENORD Cotton
SORGERI Soap, margarine
OKIMO Gold
AMEXBOIS Timber
LA FORESTIERE Timber
BRALIMA Beverages
BUSIRA LOMAMI Palm Oil
PLC Palm Oil
Source: Monographie de la Province Orientale

6
DBS News, 06 July 2007.
7
Visit to Wanie-Rukula, Kisangani, DRC. October 2009.
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Conflict Tbe externalization of local disputes
The latest violent conflict in Orientale took place in the Ituri district, fueled by the wars in
eastern Congo. The conflict first developed after a local land dispute in 1999 between Hema and
Lendu ethnic groups that was then exacerbated by the Ugandan armys occupation of the area,
amidst national rebel groups keen on expanding their power. Available political and military
support from external actors (notably Uganda and Rwanda) met growing extremist sentiments,
and local leaders in Ituri began to form more structured movements. As a result, armed groups
were born, generally based on ethnic loyalties: he predominately northern Hema group (UPC),
the predominately Lendu (FNI), the southern Hema group (PUSIC) and the more mixed
FAPC. Each of these groups received military and political support from the DRC central
government, Uganda and Rwanda at different times, and Ituri became a fierce battleground
8
.
Between 2002 and 2004, these armed groups attempted to gain recognition on the national scene,
vying for positions in the transitional government and/or in the newly integrated army. In the
scramble, local militia leaders frequently switched alliances. For these various armies, gaining
recognition meant gaining control of territory and strategic sites, including important urban
centers, key roads, gold and coltan mines and customs posts.
These strategic sites also provided financing for the controlling armed groups and their backers.
A U.N. Special Report on the events in Ituri published in July 2004 underlined that the
competition for control of natural resources, particularly for gold, by these armed groups was a
major factor in prolonging the crisis
9
. Competition for the control of resource-rich centers such
as Mongbwalu, Gety and Mabanga (gold fields) and Aru, Mahagi, Tchomia and Kasenyi (wood,
fishing, customs revenues) by the local forces and their allies has been, and remains a major
factor in the prolongation of the crisis.
Figure 2 shows the localization of the conflict within the Orientale Province as of September
2009. The geographic characteristics of Orientales recent conflict differ from those of South
Kivus in many respects. Firstly, most of the army presence in Orientale is concentrated along
the border with Sudan and Uganda, leaving most of the hinterland free of occupying troops. As
a result, security issues do not significantly constrain internal trade within the province. Another
difference with the Kivus is that while the conflict in Orientale was fueled by local land disputes;
this dynamic was neither present nor significant in the Kivus.

8
Hart and Mwyinihali (2002).
9
UN Security Council Report S/2004/573.
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13 | P a g e
Figure 2: Province Orientale: Map of Conflict

Source: United Nations Office for the Coordination of Humanitarian Affairs - Rpublique Dmocratique du Congo

Tbe collapse of tbe textile sector
The collapse of Orientales textile industry is perhaps representative of the post-colonial legacy
and post-independence era, with state intervention shaping the development of the industrial
sector. Cotton cultivation was imposed by law during colonial times, which led to the
development of cotton processing sector and some 50,000 farmers who supplied the State-
protected textile company, Sotexki. Importing inputs from Europe, the local market could only
be guaranteed with State-sponsored protection and interventionism. Growth collapse was
brought on by a combination of State failure and insecurity that led to production difficulties and
marketing failures.
Production was brought to a halt due to the interruption in the supply of cotton generally from
Mahagi, in the conflict-prone region of Ituri. The company then turned to Uganda or to other
providers in the DRC for cotton imports, but the high costs of inputs and transport reduced the
companys competitiveness at a time where cheap imports were flooding the national market
the cotton fiber was transported by plane from the Bas-Uele district, as the conflict began
disturbing road and river transportation. During the second part of the 1990s and early 2000s,
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14 | P a g e
river transportation was significantly interrupted; in recent years, inputs imported from the port
of Matadi in the Bas-Congo could take up to six months for delivery in Kisangani
10
.
In July 1999, Ugandan and Rwandan armies fought with heavy artillery on the grounds of the
SOTEXTI plant. The production was looted several times and facilities were destroyed, leaving
the company with US$ 2M in damages.
Today, the production of Sotexki has dropped from 1.6 million linear meters per month in 1991
to only 150.000 linear meters in 2009. Similarly, the workforce at Sotexki has been slashed to
less than 10% (170 workers in 2007) of what it used to be in 1991 (2600 workers.) As the
management company tries to push through a restructuring plan that would depend on the
backing of the Government, the firm is confronted today with cheap imports from Asia, lack of
credit finance and poor electricity provision
11
.
In addition, the cooperative of cotton producers Compagnie de Dveloppement du Nord,
Codenord created in 1987 by Sotexki and the government to organize the producers of
cottonseeds is today bankrupt. As a para-statal created to pre-finance cotton (and coffee)
harvests, Codenord was once a powerful economic actor made up of 50.000 cotton
farmers/producers (20.000 producers were in Ituri and 30.000 in Bas-Uele.) It also used to
manage a hydro-power plant for electricity provision and to maintain the transport infrastructure
important that was so important for cotton and coffee transportation in Orientale. The collapse
of Sotexki meant the collapse of the farmers cooperatives in Ituri and Bas-Uele, the demise of
the infrastructure facilities such as the local energy plant, roads and significant direct and indirect
economic activity linked to the sector.
Tbe collapse of tbe nontextile sectors
Just as Gcamines in Katanga, the Office des Mines d'or de Kilo-Moto (Okimo) was a prominent
entity in Orientale, operating on the same model of State-sponsored paternalism that provided
public goods like education, health, and infrastructure to employees and families living around
its 83,000 km of concession. One of the largest gold fields in the world, Kilo- Moto produced 5
tons at its peak in 1964. Production has been declining ever since, due to lack of investment and,
recently, due to rising insecurity due to the military conflict. In 1985, Kilo-Moto produced only
700 kilos
12
, an annual rate of production that fell to 400 kilos before the war and to about 50
kilos in 1997
13
. Even taking into account the production of smuggled gold which is unrecorded,
the collapse has had wide spread implications.
Orientale was also a major center of the coffee industry, with as many as 7000 plantations
producing up to 100,000 tons per year. Having boomed during late-70s early-80s, coffee was
less affected by Zarinization, but the lootings of 1991 and 1993 brought widespread destruction
of assets and triggered the fall of the sector,. Following the collapse in world coffee prices
in1996, the sector was brought to a halt.

10
Interview by the authors. Kisangani, DRC. 26 October 2009.
11
Interview by the authors with the management team of Sotexki. Kisangani. 26-27 October 2009.
12
The World Bank. 2008. Democratic Republic of Congo Growth with Governance In the Mining Sector.
13
George J. Coakley. The Mineral Industry Of Congo (Kinshasa)
http://minerals.usgs.gov/minerals/pubs/country/1997/9244097.pdf
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15 | P a g e
Figure 3: DRC: Coffee (exports) and cotton (production), several years (in tons)
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Coffee Cotton

Source: COMTRADE for coffee, and Democratic Republic of the Congo: Selected Issues and Statistical
Appendix, IMF (several years) for cotton
Other cases of growth collapse are seen throughout the economy. Collapse occurred in the
brewery industry, where Bralimas production today has dropped to 25% of its production
capacity in 1991. The paints and solvents company Penaco
14
is experiencing trouble, due to a
lack of access to working capital. Sorgeri, another company that was active in 1991 has
practically stopped operating, producing only soap in blocks
15
. The state-owned sugar company
Lotokila closed its doors in 1994. La Forestire, a large timber company left Orientale after the
Ugandan army occupied its processing facilities near Kisangani.
It is hard to predict how Orientale may continue to survive economically without massive public
investment and private entrepreneurship. The only foreign presence in the province today is that
of the UN forces, MONUC, and of bilateral military trainers providing training to the Congolese
Army in the Ituri region
16
. In contrast to Goma and Bukavu, this foreign presence has not
translated into an economic boom or the emergence of new sectors for the local economy, such
as construction (high-end residential buildings and hotels) or services (air and/or river charters,
restaurants etc.) Only two sectors remain active and present potentially attractive investment
opportunities: timber production and gold mining. Outside of these two sectors, which have an
economic impact localized especially to rural areas, it is hard to identify other viable sectors for
growth, particularly in the once industrialized urban centers.

14
Peintures nationales du Congo.
15
DBS News, 06 July 2007.
16
Interviews by the authors on condition of anonymity. Kisangani, DRC. 27 October 2009.
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16 | P a g e
Poverty Profile
Orientale is one of the most complex provinces in the DRC in terms of development and
poverty challenges. The poverty level at 75.5 percent is more than four points above the
national average at 71.4 percent. Unlike the rest of DRCbut consistent with its own history of
industrial urban declineOrientals urban level of poverty (83.4 percent) is among the highest in
the country, behind only South Kivu and Equateur.
Urban Poverty
Overall, poverty levels in Orientale are about four percent points above the national average.
Figure 4.a shows poverty levels in Orientale using three different poverty measures. The
headcount ratio provides the proportion of the population living with income per capita below
the poverty line. Poverty gap indicates the average distance of the poor population from the
poverty line, and squared poverty gap takes into account the intensity of poverty.
Looking at Figure 4.b, we see that, curiously, Orientales urban population is poorer than
elsewhere, whereas national measures show that urban populations are better, not worse off than
overall, with 83.4 percent of Orientales urban population below the poverty line.

Figure 4: Poverty
a) Orientale vs. DRC: poverty levels (%) b) Orientale vs. DRC: urban poverty (%)

Source: DRC Poverty Diagnostic 2006, using 1-2-3 survey
Years of conflict and destruction have left a legacy of higher urban poverty relative to the
national average, as well as higher urban versus rural poverty. This trend is also seen in South
KivuDRCs second poorest provincebut the trends have markedly different explanations.
While South Kivus urban poverty is caused by migration due to insecurity in rural areas, in
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17 | P a g e
Orientale, urban poverty is the result of the destruction of urban production infrastructure and the
resulting declines in income
17
.
Poverty and buman capital
The relationship between education and poverty in Orientale deserves further exploration (see
Figure 5). On average in DRC the cohort of the higher educated population presents lower levels
of poverty. In Orientale, however, we observe an inverse relationship between education and
poverty. The non-educated population in Orientale shows lower poverty incidence (59 percent)
than the equivalent cohort at the national level (77 percent), while the population with secondary
education shows higher incidence of poverty. Orientale suffered a near-total destruction of its
industrial base, and the industries that have survived function at less than 10% of their pre-war
capacity
18
. In human capital terms, such an extensive collapse has led to the loss of thousands of
urban jobs, and higher unemployment among the most educated. While rural jobs were also lost,
access to land allowed rural households to secure alternative income from subsistence farming.
Figure 5: Poverty Levels by Education of the Head of the Household
67.6%
68.6%
75.5%
79.0%
66.8%
67.0%
65.5%
43.8%
No education Primary Secondary Tertiary
Oriental DRC*

Source: Authors calculations based on UNDP (2009)
Poverty and education
Access to education is by nature limited in conflict-affected zones. As expected, Orientale ranks
relatively worse than the rest of the country in primary enrollment, as Figure 6 shows, with a
larger gap between Orientale and the rest of the DRC for boys. Without the benefit of better
data, only speculations can be made about the impact of the conflict on boys education.
Recruitment of child soldiers, community displacement and mining activities in gold and
diamonds in the region might explain these proportionally lower numbers for boys. The most

17
Data on internal migration would help better evaluate this issue, and should be the subject of further research.
18
Interviews. Kisangani, DRC. 27 October 2009.
190
18 | P a g e
dramatic situation within Orientale can be found in Kisangani, where 41% of the children
between 6 and 11 years old are not in school. That number is 32% and 30% in Bunia and Isiro,
respectively
19
. This contradicts the hypothesis above that there is a correlation between forced
recruitment and low enrollment rates in boys, as Bunia, in particular, is at the border with
Uganda and within an active conflict zone. Instead, the unusually low rate of boys enrollment
may be explained by the extent of the destruction in and around Kisangani; as interviews for this
study show, the school system collapsed. The only functioning school in Kisangani is the former
British/Belgian School, which is funded mainly by parents, who purchase books and benches,
pay for utilities and teacher salaries
20
.
Figure 6: Net enrollment rates for 6-11 yrs: Orientale vs. National (%)
54.8
48.6
51.7
51.2
47.7
49.5
boys girls total
National Orientale

Source: MICS 2 (2001)
Poverty and gender
Girls levels of school attendance and completion in Orientale are less than half those of boys.
Orientale has the lowest female completion rate for secondary education in the country. Only
1.5 percent of girls in Orientale complete secondary school, compared to 4 percent of Orientales
boys, and more than 6 percent of girls nationwide. By comparison, Bandundu counts higher
poverty ratios than Orientale but shows better education outcomes for both girls and boys, and
for both attendance and completion of school. Again, it can be speculated that Orientales poor
performance in gender measurements may be related to destruction and displacement caused by
war, from which Bandundu has been more insulated.

19
Net school enrollment rates based on authors calculations using on 1-2-3 Survey (2004-2005.)
20
Interviews by the authors. Kisangani, DRC. 26 October 2009.
191
19 | P a g e
Figure 7: Complete and incomplete secondary education (%)
46.5
31.9
48
28.7
33.2
14.9
12.4
6.1
16.4
8.4
3.9
1.5
National
male
National
female
Bandundu
male
Bandundu
female
Orientale
male
Orientale
female
% of 15-49 yr with incomplete secondary education
% of 15-49 yr with complete secondary education


Poverty and Healtb
Orientales health outcomes are dismal compared to those of the rest of the country. Orientale
shows a higher proportion of underweight children and a significantly higher neo-natal mortality
rates compared to the countrys average (see Table 3). These stark statistics can be explained by
the lack of access to health services. The ratio of doctor to population size is twice higher, there
are half as many doctors per hundred people in Orientale than in the DRC overall, and less than 2
percent of the population has access to running water, compared to 10 percent nationwide (see
Table 3).

Table 3: Health Outcomes in Orientale
Orientale DRC
Percentage of children with birth weight <2.5 kg 10.9% 7.7%
Neonatal mortality rate 3.7 2.7
Ratio doctor-population 1/38 485 1/17 746
Water connection rate 2.0% 10.9%
Source: UNDP (2009), based on EDS 2007 and DHS 2007
Orientale also scores poorly on measures of childhood disease and vaccination. Figure 8 shows
that access to full vaccination is lower in Orientale (18 percent) than nationwide (30 percent),
and the proportion of the 12-23 month old population with no vaccinations is 30 percent
compared to 17 percent nationwide. However, this does not seem to be affected by the density
ratio of population/ health centers, as fewer people appear to use health centers in Orientale
192
20 | P a g e
(7955 people per center) than in the rest of the country (9594 people per center.
21
) In other
words, some remnants of health care infrastructure are still being used, even though they may be
under-serviced.

Figure 8: Children vaccinated
30.6
17.6
18.1
30.6
vaccinated against ALL childhood
diseases
vaccinated against NO childhood
diseases
National Orientale

Source: Enquete Demographique et de Sant (EDS RDC 2007)

Summary
Looking at the Human Poverty Index (Figure 9), we observe that poverty rose between 2001 and
2003in step with the DRCbut this trend reversed between 2003 and 2006, and did so beyond
its initial 2001 level
22
.

Source: MICS 2 (2001)

22
This improvement can be explained by infant mortality figures (one component of the HPI), Orientale improved
from a level of 14.3 to 8.9 death per 1.000 live births between 2001 to 2007, well above the national performance,
which improved from 12.6 to 9.2 deaths per 1.000 live births over the same period.

193
21 | P a g e
Figure 9: Human Poverty Index

While the conflict in Orientale may play a factor in measures of displacement and economic
dislocation, the collapse of the production infrastructure has played a further aggravating role in
the decline of the province.
The province underperforms in education and health outcomes compared to the rest of the
country. Despite the overall progress noted between 2001 and 2006, and especially since 2003,
almost any of the measures of poverty point to a more dramatic situation in Orientale than in
the rest of the country.
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22 | P a g e
Applying tbe HRV Crowtb Diagnostics Frameworh
constraint on growth in Orientale Province.
Is access to finance tbe binding constraint
Orientale is currently struggling to attract private investment outside mining. The province
actually ranks among the lowest in attracting new private investments, as shown by Table 4. In
2008, the two projects under execution that made up Orientales 1.3 percent of overall private
investment in the DRC were a US$ 990,018 investment in bottled water
23
and a US$1,678,891
investment in palm oil.
Table 4: Congo DRC: Private Investment Projects (2003-2008)
2003 2004 2005 2006 2007 2008* Total %
Kinshasa 39 49 51 46 53 46 284 44.5
Inter-Province 40 36 26 19 10 21 152 23.8
Katanga 15 6 12 9 18 25 85 13.3
Bas-Congo 8 8 5 5 5 8 39 6.1
Kasa Orientale 7 2 3 4 2 1 19 3.0
Nord-Kivu - 2 - 5 4 3 14 2.2
Equateur 1 2 2 2 3 1 11 1.7
Bandundu 1 3 3 0 0 0 7 1.1
Sud-Kivu - 1 - 2 2 1 6 0.9
Maniema - - - 0 0 3 3 0.5
Total 112 114 104 96 100 112 638 100.0
Source: ANAPI (2008)
*For 2008, data includes ongoing and completed projects. All other years account for intended investment.
**Excludes mining and forestry projects.
South Africas AngloGold and Randgold have agreed to invest about $520 million in the former
Okimos Kilo-Moto concession. Covering a large extension in the territories of Ituri and Haut-
Uele, the Kilo-Moto concessions (today known as the Kibali project) were among the worlds
largest gold mining projects.
24
The area was heavily affected by the military conflict and large
sections remain occupied by various rebel groups and militias. Estimations are that the current

23
The company, Ets. Meera is invested in food production (bread) and commerce (supermarkets).
24
The Kibali project is part of the so-called Congo Craton, a geological formation that is considered to be the last
gold resource still under-explored and unexploited in Africa.
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23 | P a g e
production of 6 metric tons (1.2 % of the total production in Africa) would jump to 25 tons by
2015
25
, given full deployment of AngloGold and Randgold projects and subject to pacification in
th area.
The number of households that report having access to finance for working capital in non-
agricultural enterprises is low, although not particularly low in comparison with other provinces
(see Table 5). However, access to formal finance appears to pose a constraint, as evidenced by
the important role of tontines (family/community-based revolving credit schemes), the small
average size of initial capital and the high proportion of working capital provided by-own or
family savings.
Table 5: Credit for non-agricultural family enterprises

# of
Workers
Source
Initial capital
(000 CDF)
Financial
Institution Friends Family Own Savings Tontine Others
Bas Congo 2 5.663 1.7% 4.3% 20.5% 57.6% 6.8% 9.1%
Bandundu 1 2.626 2.2% 9.0% 16.7% 31.4% 1.5% 39.2%
Equateur 1 3.084 2.3% 2.4% 31.3% 43.0% 2.5% 18.5%
Orientale 3 4.713 2.4% 12.0% 29.3% 34.4% 10.5% 11.0%
Nord Kivu 2 7.993 0.0% 7.2% 18.2% 45.3% 4.0% 25.3%
Maniema 1 9.356 3.8% 11.0% 38.6% 33.0% 3.5% 10.1%
Sud Kivu 1 9.230 2.9% 3.0% 19.9% 47.8% 1.3% 25.2%
Katanga 1 5.928 0.7% 3.1% 32.8% 40.8% 6.7% 15.9%
Kasa Orientale 2 11.154 0.0% 9.9% 23.3% 43.9% 5.5% 17.4%
Kasa Occidental 2 13.598 4.4% 7.3% 22.6% 45.9% 50.0% 19.4%
Source: Enqute 1-2-3 (2004-2005)
Though access to finance is limited, the situation is not worse than in the rest of the country.
This makes it hard to argue that a particular feature of the province (i.e. the current level of
conflict) is limiting the participation of the banking sector.

Is it Ceograpby
Orientale borders Central Africa Republic and Sudan to the north, Uganda to the east, Equateur
to the west and North Kivu and Maniema to the south. The province was connected to major
trading corridors and had some of the few truck roads in the country, most of which have today
fallen into disrepair. The port of Kisangani in the Congo River was second to Matadi in
importance and made Kisangani a major trading hub.

25
Daily Graphic Business, 12 September 2009.
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24 | P a g e
Orientale possesses some of the worlds largest deposits of gold, along with deposits of coltan
and diamonds. Endowed with rich soils and forests and abundant rains, Orientale was once the
center of agro industry with cotton and coffee as main products. Today, the agriculture-rich
areas are mainly landlocked due to the dilapidated infrastructure network and the presence of
armed militias. Transportation within the province is only done by dilapidated roads, with rail
lines having ceased to work during the war.
Since the economic question being asked is why growth collapsed, and why production has
ceased, geography cannot be seen as a binding constraint for Orientale. Given Orientales
previously productive industries, especially agro industry and coffee exports, and its role ad trade
hub, geography is seen as an advantage for the province.
Is infrastructure tbe binding constraint
As a river port and the farthest accessible point by river from Kinshasa, Kisangani owed its
expansion to transit and trade on the Congo River. The port of Kisangani was the second largest
in the country and has always been a key transit point for the shipping of mining and agriculture
production from Maniema, Katanga (via river and train) and the Kivus (by road) to the ports of
Matadi and Kinshasa. Equally, the port served as a point of distribution for imported goods and
inputs from Kinshasa and from the rest of the World. An extensive network of river, rail and
roadways served the immense territory, moving goods from the Uele districts and Ituri into
Kisangani for processing and transportation. From Kisangani, production was transported
southward to Kinshasa and Matadi on the Congo River. Orientale was also an important center
in the production, manufacturing and transportation of coffee, rubber, cotton, timber and gold.
Today the journey up on the Congo River from Kinshasa to Kisangani (1,734 km) takes about
seventeen days, with private river transport operators. The para-statal transportation company
(ONATRA) still ferries goods to Orientale, but the journey sometimes takes several months due
to the lack of dredging equipment and the poor condition of tugboats and navigational
equipment
26
. Kisangani has two twin ports, one on each bank of the Congo River. The port
on the northern bank is operated by ONATRA and connected by road to Buta, Isiro and Bunia in
the north and east of the province. The port on the southern bank is operated by the national
railway company (SNCC) and connected by rail to Ubunduat Ubundu the Lualaba River
becomes navigable again, linking the Orientale province to Maniema and Katanga. The smaller
port of Bumba on the Congo River at the border between Orientale and Equateur once connected
important agricultural centers like Isiro, Buta and Bondo by rail and road with river transport to
Kinshasa, but these rail and roadways, as well as the port of Bumba has fallen into disrepair.
As with the rest of the DRC, an intricate network of agricultural and feeder roads that connected
to the railways and the main road axes were maintained by the companies, both private and para-
statal, operating in the area. This expansive network has since become impracticable with the
collapse of the provincial economy, in particular with the collapse of the coffee and cotton
sectors that had been the heart of the economy north of Kisangani. The outbreak of conflict

26
Interview with ONATRA. Kisangani, DRC. Xxx Oct. 2009. Also interviews by the authors. Kinshasa, DRC. 27
October 2009.
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25 | P a g e
further contributed to the destruction of the infrastructure networks and equipment. From the
3,363 km of road network, 62.4 percent is in bad condition.
Table 6: Province Orientale: Road Infrastructure (2005)
Axis Good Fair Bad Total
Kisangani - Isangi - Basoko 84 91 132 307
Kisangani Ubundu 30 62 37 129
Kisangani Opala 80 85 100 265
Kisangani Bafwasende 40 92 130 262
Isiro Nyanya - 45 187 232
Isiro Poko 6 32 95 133
Isiro Ameta - 21 106 127
Isiro - Watsa Faradje - 85 326 411
Faradje - Aba - Kitambala - 46 81 127
Ameta - Dungu Fradje - 68 154 222
Dingila Poko 37 91 237 365
Buta Banalia 10 39 147 196
Buta - Dulia - Bondo - Ndou 85 106 234 425
Doulia - Aketi - Bunduki 7 20 106 133
Monga Likati 1 28 29
Total (Km) 379 884 2100 3363
Total (%) 11,3 26,3 62,4 100
Source: Monographie de la Province Orientale (2005)
The two most important economic centers, Isiro and Bunia, are virtually unreachable by road
and/or rail
27
(see Table 6).
The roads from Bunia and Isiro to Kisangani meet at the Okapi National Reserve Park and cross
the park south to Kisangani. This area is controlled by armed groups, lured by the presence of
coltan deposits. These groups resort to extortion along the roads. Isiro once exported 100,000
tons of coffee and was reportedly one of the richest cities in the DRC
28
. The road from Isiro to
Kisangani road is currently impassible, and the railway from Isiro to Bumba is not operating.
Armed groups surround the town while the UN peacekeepers try to enforce a fragile peace.
Today Isiro is poorer than Kikwit, the poorest town in Bandundu
29
.
The poor state of infrastructure in Orientale is also reflected by the distance of cities and towns
to economic centers. Apart from Bandundu, Orientale is the province with the lowers
connectivity to markets. Almost one-third of the population is further than 5km from a market,
as shown in Table 7. Moreover, the percentage of people living within a reasonable distance of
a sanitary center or a hospital is comparatively low.

27
For security reasons, the authors could not travel to Isiro.
28
Interview by the authors on condition of anonymity. Kisangani, DRC. 26-27 October 2009.
29
See the Bandundu, Growth Diagnostic Report
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26 | P a g e
Table 7: Orientale: Household access to infrastructure

Market less
than 5km away
than 2km away
Hospital less
than 10km
away
Kinshasa 98.6 99.6 99.6
Bandundu 58.5 50.9 51.3
Orientale 71.5 68.4 52.4
Nord Kivu 84.2 86.6 75.6
Sud Kivu 88.8 85.7 70.1
Katanga 74.1 63.9 53.9
Kasa Orientale 90.7 95.6 85.2
Source: Enqute 1-2-3 (2004-2005)

It is important to mention that Orientale is the province with the highest land access in the DRC,
as shown in Table 8. Access to land is thus not a constraint: effective exploitation of the land,
however, may be. Infrastructure could be considered a major limitation on this, even in secure
areas: farmers cannot reach markets, sell surpluses, and shift production to more profitable
sectors or import inputs. Without formal markets to sell agricultural products, many farmers sell
their products to mining camps, or abandon farming to become miners despite low value given to
locally mined minerals. Good access to land, however, explains good food security and lower
rural compared to urban poverty in the province, but contributes little to growth or poverty
reduction if the land is not being commercially exploited.
Table 8: Congo DRC: Access to Land
Province
% of Households with access to
land
Orientale 74.3
Bas Congo 69.5
Bandundu 67.6
Kasa
Oriental 62.6
Nord Kivu 61.5
Katanga 59.2
Kasa
Occidental 55.1
Sud Kivu 48.3
Maniema 42.6
Equateur 38.6
DRC 55
Source: Enqute 1-2-3 (2004-2005)
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27 | P a g e

In the past, para-statal and State owned companies like Codenord, SNCC and Okimo, and the
private sector maintained the main transport axes and the feeder roads connected to them. Today
however, neither public nor private agents undertake network maintenance, even in secure areas.
The task is deemed too immense, and companies are too illiquid as to expect infrastructure to be
provided by the former para-statals or the private sector. Also, uncertainty about the future
limits investor interest. Most urban industries are in a state of collapse, plantations and feeder
roads abandoned.
Flectrlclty
With several major rivers and tributaries to the Congo River, Orientale has significant
hydroelectric potential. The existing transmission lines and distribution network are in poor
condition, as are the hydro-electrical installations of Tshopo
30
, Budama and Solenyama. Besides
these installations that need to be renovated, the province has identified a number of sites for
installation of new power plants (see Table 9). The most promising of these is Nepoko, which
could generate 10 MW on the Nepoko River in the Okapi Reserve, north of Kisangani.

Table 9: Orientale: Hydro-electricity
River Potential Capacity (MW)
Nepoko 10
Lepunlungu 2-3
Uele 1.7
Rubi 1.2
Lobilo 0.8
Tshopo Reinforcement of Kisangani
Congo
(Wanie-Rukula and Wagenia)
Reinforcement of Kisangani
Source: Carte Postale, Synthse du Programme de dveloppement et
quelques projets prioritaires

Kisangani suffers from blackouts and connectivity problems, with a grid network in a state of
total degradation and low-generation capacity. The national electric company SNEL does not
provide proper maintenance for the grid infrastructure, resorting to patching up damaged
electrical cables with tape
31
. Sodefor, the largest private timber-processing factory near
Kisangani, was left without electricity for 48 days during 2008. In October 2009 the plant was

30
The authors visited the Tshopo hydro-plant and could witness the state of abandonment and lack of maintenance
of the power facilities.
31
Interviews by the authors. Kisangani, DRC. 27 October 2009. A private operator told the authors about how
damaged transmission lines were patched up with scotch tape. Given the 100% humidity rates, the tape would swell
with the rains and then melt under the scorching Equatorial sun.
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28 | P a g e
left without energy for 14 consecutive days
32
. Similarly, Sotexki reported chronic energy
outages and poor quality in transmission.
33
For private firms, the cost of exporting diesel from
Kinshasa along the Congo is prohibitive. Alternative solutions, such as self-generation, are
prohibitive for energy-intensive sectors such as timber and textiles.
Of its nearly 1 million inhabitants, only 8 percent of Orientales households can afford electricity
at home
34
.
Summary
Lack of electricity is a major constraint for the manufacturing and industrial firms in Kisangani
and throughout the province. Electricity provision by the national company SNEL has fallen
below both capacity and demand. The study finds that the state of transport infrastructure (lack
of feeder roads, collapse of main roads and rail links) is a major constraint to the economy. It is
the most constraining factor for private investment in secure areas.
Ioohlng for cumelx unJ hlppox
It is often the case that some sectors collapse while others find ways to survive given the same
circumstances. As the HRV framework demonstrates, companies that require the most scarce or
constrained production inputs will likely not survive, while other companies may be able to
move away from existing constraints. Applying the HRV camels-and-hippos metaphor to the
case of Orientale, the study may ask whether some sectors were able to survive within the
scarcity of factors needed in the business environment (camels), whereas others were not able
to circumvent the business constraints (hypos.) Timber and gold extraction are e two
industrial sectors still attracting private investment into Orientale
35
. The timber industry has
circumvented the infrastructure bottlenecks by exploiting the concessions nearest to the Congo
River and to practicable roads that were built and maintained by the companies themselves. The
timber operators are vertically integrated, using their own fleets of tug boats to push barges and
floating logs and using their own ports private ports in Kinshasa and along the Congo River.
Finally, processing of the timber logs for export is done in Kinshasa, where electricity is
available
36
. They are thus able to control or avoid bottlenecks and related risks. n the case of gold
extraction industry, the high prices and the prospects of new ore deposits in high concentration
have already attracted foreign private investorsAngloGold Ashanti and Randgold, notably.
These investors are able and willing to provide through their own private means for the security
and the infrastructure necessary for exploration and exploitation. In addition, being close to the
Ugandan border and having a high price/volume ratio, transportation costs represent only a small
fraction of their operating costs.

32
33
Interview by the authors. Kisangani, DRC. 26-27 October 2009. The team was told that the industrial equipment
is often damaged due to the inconsistency in the voltage supplied.
34
Coopration Technique Belge. Accessed at: http://www.btcctb.org/doc/UPL_200803281105131507.pdf
35
These sectors are now joined by a small-scale Arabica coffee industry and artisanal diamonds mining.
36
The private firm Sodefor has a processing facility near Kisangani that runs under-capacity due to lack of
electricity. Interviews by the authors. Kisangani, DRC. 26 October 2009. Also, interviews in Kinshasa, DRC. 27
October 2009.
201
29 | P a g e
Diamond production was also a growth industry a few years ago, as alluvial diamond extraction
is labor-intensive rather than infrastructure-intensive. Other minerals like coltan are also
exploited using cheap manual labor and limited infrastructure input. The raw production is then
transported by plane, mostly illicitly.
For their part, coffee producers experienced two significant constraints: they can no longer
obtain credit for pre-financed growing cycles, and they are not able to use the infrastructure in
the ports of Bumba and Kisangani, and were left to export small quantities of unwashed coffee at
low prices to Mombassa in Kenya via Uganda.
However, most of the coffee and palm oil producers, as well as sugar and cotton producers are
currently out of business. These sectors are not viable in an environment with no infrastructure
and high insecurity. The primary sector (mostly subsistence agriculture) makes up for the largest
share of GDP in Orientale (60%), followed by the tertiary with about 30% of the GDP (trade
contributes about 28%.) Such numbers suggest that infrastructure-intensive sectors today play a
minor share in the local economy.
Is it Human Capital
Lack of investment and low outputs in the manufacturing, industry and services sectors,
excluding trading, combine to give an increased dependency on subsistence agricultural
activities. This reduces opportunities for skilled workers to find jobs in the province. Timber,
gold and diamond provide few jobs for educated workers, as evidenced by the high poverty
incidence among households whose heads have a secondary education. An indication of the
prevalence of urban poverty is found in the lack of employment opportunities vs. low human
capacity (i.e. no employability) in the labor force.
Table 10: Poverty Incidence by level of Education
Poverty Incidence
Orientale DRC
No Education 59.0% 77.0%
Primary 76.6% 76.3%
Secondary 78.3% 71.9%
Tertiary 66.4% 34.1%
Province 75.5% 71.4%
Urban 83.4% 61.5%
Rural 73.7% 75.7%
Source: UNDP (2009)

What Table 10 suggests is that under the current circumstances, education does not appear to be
the binding constraint for growth in Orientale. The odds for a university graduate to be poor in
Orientale are twice as high as nation-wide. Secondary-level graduates are also worse off in the
province vis--vis the rest of the country. These findings are indicative of the lack of
opportunities for skilled workers and of an oversupply, vs. a lack of skilled labor.
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30 | P a g e
Orientale has been lagging behind the rest of the country in terms of the stock of human capital
in the labor force. The gap, however, appears to be widening for the younger cohorts and
shrinking for the older cohorts (see Figure 10). The population in working age is below the
levels of average education for the country, meaning that the stock of skilled labor in the
province is shrinking. As mentioned in the poverty chapter, low school enrollment and to the
outward migration of educated workers from the province may help explain the negative trend.

Figure 10: Orientale and the DRC: Stock of Human Capital by age cohorts


Given the almost complete disappearance of the urban economy, labor is now concentrated in the
rural sector, specifically in informal agriculture (84.2 percent of the workforce.) The second
largest sector is informal non-agriculture at 9.9 percent of the workforce. Private formal
employment is almost nonexistent, at 0.6 percent, 3 times less than the national average in this
sector.
Table 11: Orientale vs. the DRC: Employment Structure

Orientale RDC
Public Administration
3.2% 4.5%
Para-statal
0.9% 1.8%
Private formal
0.6% 1.7%
Informal non-agricultural
9.9% 19.2%
Informal Agricultural
84.2% 71.4%
Associations
1.3% 1.4%
Source: UNDP (2009), based on INS and 1-2-3 Survey

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31 | P a g e
With demand for educated workers in the province being weak, the labor market generates lower
average wages for both qualified and not qualified workers in Orientale than for the rest of the
country. This is yet further evidence of a languishing formal sector and low labor demand.

Figure 11: Orientale vs. the DRC: Share of qualified workers and salaries

Note: Qualified workers are those with at least primary education completed
(five years of education.)

The study finds that the economy in Orientale does not face shortages of skilled labor, making
human capital an insignificant constraint for Orientale. This is not because educated workers are
in abundant supply (in fact, the province has a lower stock of human capital than the rest of the
country), but rather because of low demand for skilled labor. With labor concentrated in the
informal economy, in particular in agriculture, the province does not demand skilled workers and
pays them lower than national average wages. This factor combined with the armed conflict
could explain the very low levels of enrollment school enrollment in the province.
Is it low appropriability
Do entrepreneurs fear appropriation of the fruits of their capital, and consequently, refrain from
investing? Low appropriability constraints may stem from extortion in the form of taxes or
corruption, as well as from a breakdown of the rule of law. They may also stem from negative
externalities in information and coordination of markets. An examination of the many aspects of
appropriability as they are seen in Orientale is given here.
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32 | P a g e
Covernment failures
In addition to the physical destruction of assets and infrastructure, the conflict in Orientale has
led to breakdown in the rule of law, and the rise of extortion and informal taxation practices
that are a by-product of the presence of uncontrolled armed groups and militias
37
. Private firms
are deterred from investing in army-controlled territories and simply abandon their investments.
This is seen in the case of assets owned by the Greek community in Bunia and Isiro
38
, both
important economic centers in gold (Bunia) and agriculture/coffee (Isiro
39
.) With the collapse of
the cotton and coffee industry and the presence of roaming military groups, farmers have either
left their land or lack the incentives and capacity to produce beyond their subsistence needs.
Agriculture surpluses cannot be sold, as they commonly cannot be moved to the markets and
famers fear confiscation by armed groups.
Illicit trade and smuggling of minerals by occupying armies to Uganda and Sudan may also
contribute to shifting the workforce away from the land. Although such evidence is difficult to
obtain, Table 12 suggests such a trend in Orientale. Despite the high ratio of access to
ownership, only 56.7 percent actually exploit the land for agricultural purposes. The province
has the lowest percentage of heads of households working on their own agricultural land, despite
having the highest reported access to land (74.3 percent.)

Table 12: DRC Access to land and status of workers (%)
Households
with access
to land

Households
having an
agricultural
exploitation
Households
heads working
in their own
farm
Household
members
working in their
own farm

Bas Congo 69.5 55.4 98.0 1.3
Bandundu 67.6 75.1 95.4 3.8
Equateur 38.6 72.6 94.9 4.1
Orientale 74.3 56.7 85.1 13.5
Nord Kivu 61.5 44.7 90.6 4.2
Maniema 42.6 55.1 97.1 2.3
Sud Kivu 48.3 44.5 87.7 6.9
Katanga 59.2 57.3 95.9 1.8
Kasa Orientale 62.6 56.2 95.7 2.8
Kasa Occidental 55.1 61.4 86.6 8.9
Source: Enqute 1-2-3(2004-2005)

37
38

39
Isiro was the third economic center up until the 1990s. Its large coffee plantations have all but been abandoned.
Interviews. Kisangani. DRC. 26 October 2009.
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33 | P a g e
Is it coordination failures
Without transport infrastructure to connect the vast territories of the province, electricity to
regain the once growth-generating industrial position and a vibrant financial sector to grant credit
and financing for investments, it is difficult to see how economic agents can single-handedly re-
start the in Orientale economy and make it once again viable. Private investment will not be
attracted to Orientale without a coordinated effort of public authorities, the private sector and the
international community.
Indeed, in order for Orientale to regain its position as the main trading center between the
countrys eastern and western provinceswith the capital Kisangani found metaphorically at
the bend of the riverit would need massive investments in rail, road and port infrastructure.
Further, Orientales resurgence would have to rely on the recovery of the economy of the DRC
as a wholewith the economies of Katanga, Maniema and the Kivus producing at capacity in
terms of agriculture and mining.
Is It Selfdiscovery
Orientale also faces a self-discovery dilemma. One feature of its economic system is the
exogenous way it came to exist. Indeed, with the exception of coffee, most sectors of the
economy did not grow from the private initiative of homegrown entrepreneurs. The cotton,
rubber, sugar, palm oil and textile industries were imposed either by the colonial authorities in
the early part of the 19
th
century or by the State during the Mobutu years. As one private
operator put it, manufacturing industries were implanted in Kisangani as a political move by
Mobutu to pacify the rebellious populations of the province. Industrial activity thus emerged
thousands of kilometers from the goods and supplies that it required as inputs
40
. It was an
outlandish and expensive plan, but the regime bankrolled it. Today, however, the province has
lost its patrons as well as the array of subsidies and protectionist measures that helped its main
industries survive. As a result, Orientale is struggling to find its comparative advantage.
Timber, mining and agriculture appear to be the most viable sectors under the present
circumstances. The authors were told of a few new potential investments in constructione.g.
bus transport services between Kisangani and Kampala; the opening of a local branch for
existing airline companies (Kenya Airways
41
. But insecurity, the lack of infrastructure and
administrative red tape pose major constraints to any investment of scale.
Summary
It is unclear how Orientale might resume with economic growthand in which sectors. Self-
discovery is a top constraint for the province, meaning that industries and sectors chosen and
fueled by local inputs and local labor and driven by local talent are the key to sustainable growth.
The province would need initial financial assistance as well as a coordinated effort from public
and private sources. Removing bureaucratic constraints and red tape would have a positive effect
on encouraging investment and entrepreneurship
42
.

40
Interview by the authors on condition of anonymity. Kisangani, DRC. 26 October 2009.
41
42
206
34 | P a g e

Conclusion

Insecurity and conflict have pushed the local economy into subsistence and informality, and have
also contributed in damaging investors confidence. The mass lootings of 1991 and 1993 have
inflicted severe damages to the manufacturing sector and to the infrastructure grid that are still
being seen and felt today.
Moreover, the armed groups control over the provinces main natural resources and key trading
posts, and the infrastructure supporting these assets
43
represent a deterrent to the resumption of
economic activity and trade. The local government and private actors are prevented from
mobilizing resources. The stranglehold of armed militias over trading routes, including key
transit roads within the province and into neighboring countries is crippling for the formal
sectors of the economy. The population is unable to travel to the markets to sell their goods.
The presence of armed forces undermines the incentives to re-invest in formerly profitable
economic sectorssuch as palm oil plantations that sit abandoned for thousands of hectares
along the Kisangani-Wanie-Rukula road. The state of subsistence and deprivation is maintained
by the lack of access to markets, as farmers have no capacity either to sell the surpluses or to
shift towards more productive alternative sectors. As a consequence of prolonged insecurity, the
province has lost its comparative advantage in coffee, palm oil, cotton and other agro industrial
production and agriculture has become subsistence-driven. New investors are also deterred.
Low appropriability and low social returns to economic activity due to the lack of infrastructure
today constrain investment and the formal economy, which in turn limit job creation (especially
in urban areas) and diversification.
The extractive sector (diamonds and gold) and timber might provide new opportunities for
investment. However, unless an until the root causes conflict can be addressed, it would be
difficult for new investors to invest in costly processing and manufacturing facilities, which do
require security protection.

43
Interview by the authors and visit to Wanie-Rukula. 25 October 2009.
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35 | P a g e
Policy Issues
Interventions to unlock the Orientale economy are vital. If action is not taken, the province
will experience continued economic separation from the rest of the country. Security is the
most binding constraint for the province, as armed groups occupy the productive centers,
deter investment and put merchants at risk. Rehabilitation of the transport infrastructure in the
province and of the electricity grid in the urban centers must be tackled in parallel, if the
province is to reap the benefits of these infrastructure improvements. The study recommends
that innovative public/private approaches be explored to un-bundle the large reconstruction
and infrastructure projects, and to incentivize the private sector to engage in the restoration of
power generation.
The risks of sliding back into conflict are very present. The private sector cannot be expected to
deliver peace and security. Neither will the provincial authorities or even the central
Government single-handedly deliver peace. The regional dynamics of the conflict must be
addressed, for the economy of the province to recover. Restoring security along the border areas
of the province would be an initial step towards restoring a degree of confidence both for
potential investors and for the population.

208
36 | P a g e
References
capacits.
Butcher, Tim. Blood River. 2008.
FAO, 2008. Executive Brief: Democratic Republic of Congo Comprehensive Food Security and
George J. Coakley. The Mineral Industry Of Congo (Kinshasa). Accessed at
http://minerals.usgs.gov/minerals/pubs/country/1997/9244097.pdf
Hart and Mwyinihali (2002).
Hausmann, R., & Klinger, W., 2008. Growth Diagnostics: A Mindbook.
Hausmann, R., Rodrik, D., & Velasco, A., 2004. Growth Diagnostics. John F. Kennedy School
of Goverment, Harvard University .
IMF, 2006. Poverty reduction Strategy Paper.
See Ligeois, M, 2008. La Dcentralisation en RD Congo: Enjeux et Dfis. Groupe de
Recherche et dInformation sur la Paix et la Scurit.
The World Bank, 2008. Democratic Republic of Congo Growth with Governance in the
Mining Sector.
UN Security Council Report. 2004. S/2004/573.
UNDP, 2009. Province Orientale: Pauvret et Condition de Vie des Mnages.
US Geological Survey, 2007. Mineral Commodities Summary.

209

Sud Kivu Province,
DRC

2009
A u l k n k

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2 | P a g e
U l l o a , K a s t , K e k e h

Table of Contents
Abbreviations and acronyms........................................................................................................... 4
Acknowledgements ......................................................................................................................... 5
1. Introduction ............................................................................................................................. 8
1.2 Describing current GDP composition ............................................................................ 11
1.3 Explaining Growth Collapse .......................................................................................... 12
1.3.1 Conflict and disruption ................................................................................................. 13
1.3.2 Conflict and the resource curse .................................................................................... 14
1.3.3 Insecurity and the collapse of the rural economy ......................................................... 15
1.3.3 Insecurity and the degradation of the investment climate ............................................ 18
2. Poverty Profile ....................................................................................................................... 20
2.1 Poverty Incidence ................................................................................................................ 20
2.2 Poverty and education ......................................................................................................... 21
2.3 Poverty and health ............................................................................................................... 22
2.4 Summary ............................................................................................................................. 23
3. Applying the Growth Diagnostics Framework .................................................................. 24
3.1 Is access to finance a binding constraint? ...................................................................... 24
3.2 Is it lack of social returns to economic activity? ............................................................ 25
3.2.1 Is infrastructure the binding constraint? ................................................................. 25
3.2.2 Is It Human Capital? ............................................................................................... 27
3.3 Is it the inability to appropriate the fruits of investment? ............................................. 29
3.3.1 Is it Government Failures? ...................................................................................... 30
3.3.2 Is It Market failures? ............................................................................................... 31
4. Conclusion ................................................................................................................................ 32
Policy Issues .............................................................................................................................. 34
References ..................................................................................................................................... 37

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3 | P a g e
Figure 1 Sud Kivu: Evolution of Sector GDP, 2006-2008 ........................................................... 12
Figure 2 Sud Kivu: Presence of Armed Groups and Localization of Mineral Resources ............ 14
Figure 3 Sud Kivu: Army presence and Roads ............................................................................. 15
Figure 4 Sud Kivu: Source of Household Revenues Before and After the War ........................... 16
Figure 5 Poverty ............................................................................................................................ 20
Figure 6 Poverty level among the unemployed, inactive or retired .............................................. 21
Figure 7 Sud Kivu vs. other provinces and DRC: Enrollment rates ............................................. 22
Figure 8 Health ............................................................................................................................. 23
Figure 9 Stunted children under five ............................................................................................ 23
Figure 10 Average years of education .......................................................................................... 27
Figure 11 Workers compensation by qualification ....................................................................... 28
Figure 12 Human capital by gender: Sud Kivu vs. DRC .............................................................. 28
Figure 13 Workers in the agriculture ............................................................................................ 29

Table 1 Sud Kivu: At a glance ........................................................................................................ 8
Table 2 Sud Kivu: Evolution of Population (1984-2008) ............................................................... 9
Table 3 Sud Kivu: GDP Composition 2006-2008 Constant 2006 Prices ..................................... 11
Table 4 DRC Selected indicators for agricultural exploitations ................................................... 17
Table 5 Sud Kivu: Food security & land size ............................................................................... 18
Table 6 DRC: Private Investment, in number of projects (2003-2008) ........................................ 18
Table 7 DRC: Access to credit for working capital ...................................................................... 24
Table 8 Sud Kivu: Roads (kilometers).......................................................................................... 25
Table 9 Sud Kivu: Households with access to infrastructure at a reasonable distance ................ 26
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4 | P a g e

ACF Action Contre le Faim
ACOGENOKI Association of cattle farmers
ANAPI Agence pour la Promotion de lInvestissement
CDF Congolese Franc
DSCRP Document de Stratgie de la Croissance et de la rduction de la pauvret
EDS Enquete Demographique et de Sante
FARDC Forces Armes de la RDC
IDPs Internally Displaced Persons
MONUC Mission des Nations Unies au Congo
NGOs Non-Governmental Organizations
PMURR Programme Multisectoriel d'Urgence pour la Relance et Reconstruction
SOMINKI Socit Minire et Industrielle du Kivu
SENASEM Service National de Semences
UN United Nations

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5 | P a g e
Achnowledgements

1

1
214
6 | P a g e
Executive Summary
2

Sud Kivu had a relatively strong, diverse economic base, with a strong industrial
agriculture sector, and a lively mining sector prior to the collapse of the economy due to
years of conflict and instability. Instability and uncertainty led to poor economic growth
performance in Sud Kivu during the period 2006-2008, during which time all the three main
sectors accumulated real output losses. Conflict and insecurity represent the over-arching and
crosscutting constraint to growth in Sud Kivu.
The poverty diagnostic finds that conflict-related dynamics of disruption have taken a huge
toll on Sud Kivu, and created a concentration of high population density around urban centers
coupled with de-populated and abandoned productive rural areas
3
. As a consequence, Sud Kivu
today counts the highest poverty headcount in urban areas in the country. At the same time, its
urban unemployment rate is double the national average. Sud Kivu presents another sobering
statistics related to gender discrimination in terms of access to education. In Sud Kivu, less than
two percent of the female population aged 15 to 49 years completes secondary education, for
near six percent at a national average. Furthermore, the province has the lowest proportion of
households with access to agricultural exploitation. Worse still, those working the land have on
average very small productive land units that are insufficient to provide food security for the size
of average household (5.8.) Sud Kivu today is a vulnerable economy with the highest risk of
food insecurity and the highest poverty rates in the DRC urban population. The precarious
livelihoods in the urban areas call for urgent action, particularly in the realms of health and
education.
The growth diagnostic finds that Sud Kivus most binding constraint to growth and
poverty reduction lies in the legacy of insecurity and violent conflict of the past years.
Conflict has disrupted every aspect of the economy and affected the livelihoods of the provinces
population. Indeed, each node of the HRV decision tree has been affected by the long-lasting
impact of the conflict: directly and indirectly, dynamically (e.g. through long-term demographic
imbalances) and statically (direct causal impact).
Conflict has disrupted agriculture in several overlapping ways: firstly, people in the
agriculture zones have been forced to move toward the urban centers for safety, and in
search of agricultural inputs and income-generating activities (that were disrupted by
landmines laid in rural areas and roadblocks.) Secondly, the access and control by the armed
groups over the provinces natural resources has precluded normal economic activity. Thirdly,
high population growth and massive refugees and IDPs movements in the aftermath of the 1994
genocide have continued to exert tremendous over scare resources in land and food.

2
3
Monographie de la Province du Sud Kivu.
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7 | P a g e

Access to land appears to be a constraint primarily because of security rather than because of
land rights and property issues. Indeed, the actors interviewed in the province all seem to the
sentiment that the disruption could be reversed: i.e. would the conflict and the violence come to
an end, the Kivuans, including the combatants as many have noted, would be willing to return
from the cities to the land they have abandoned and restart their income-earning activities.
Unless this combination of dynamic forces (changing demographics and food security) and
static forces (armed groups in control over sites of mineral resources) is addressed, there is
a risk that the situation of the province will remain extremely fragile. Sud Kivu will remain
caught in a vicious cycle of conflict, economic disruption and poverty. Urban migration will
mean less production supply and increased demand for food. Lack of urban jobs and income
will contribute to further urban poverty, and consequently, increased pressures on the
government for social interventions. Moreover, the illicit trafficking of natural resources and the
control by armed groups will result in loss of licit revenues for the State and the Provincial
Administration, further hindering their capacity to respond. Furthermore, the absence of any
new private investment
4
outside the mining sector in the province over the past five years
appears to corroborate the conclusion that insecurity and instability are keeping private investors
at bay, at least in those sectors where returns are not high; and, thus represent the most binding
constraint.
Last but not least, the continuation of the conflict is leaving profound scars on society in
Sud Kivu and the whole of Eastern Congo; real scars as well as the invisible scars of the
unimaginable and unspeakable violence against women and girls.
5

4
As recorded by ANAPI.
5
The authors visited the Panzi Hospital in Bukavu, where Dr. Mukwege and his team are fighting against all odds to
provide treatment to hundreds of thousands of victims of rape and sexual assault, and to give them the skills to start
their lives over again
5
.
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8 | P a g e
1. Introduction

Table 1 Sud Kivu: At a glance
Sud Kivu DRC
Population growth (annual %) 2.9
Surface area (sq. km) (thousands) 69.1 2,344.9
Literacy rate, youth female (% of females ages 15-24) 63.1
Literacy rate, youth male (% of males ages 15-49) 70.4
HDI (2006) 0.60
Poverty (%) 84.7 71.3
Source: World Development Indicators, UNDP, EDS RDC 2007, 1-2-3 Survey and Authors own calculations

Until the late eighties, Sud Kivu
6
was a part of a larger Kivu province, which included the area,
now comprised of the provinces of Sud and Nord Kivus and the province of Maniema. In 1986,
the territory of the larger Kivu was re-organized into the present three separate provinces.
Sud Kivu occupies an area of 69,130 km (3 percent of the country) and counts a population of
4.4 million
7
(7.1 percent of Congos total population.) Population has almost doubled in the past
eighteen years, making the province one of the densest in terms of population with 70 inhabitants
per km. The population is primarily rural (78.4 percent.)
To the east, Sud Kivu shares a land border with Rwanda, land and water borders (in Lake
Tanganyika) with Burundi. To the south it borders with Katanga and to the west by Maniema.
The main cities are Bukavu
8
(415,521 inhabitants in 2003) and Uvira (104,338.)
As with the rest of the DRC, Sud Kivu has a high percentage of youth (51.1 percent under 15
years, 56.1 percent under 18 years) and only 9.9 percent older than 50 years. The dependency
ratio is very high with 2.4 dependents per active person. The average size of the households for
the province (5.8) is slightly higher than the national average (5.3.) Population is essentially rural
(78.4 percent) and the urban population of the Province represents only 5 percent of that of DRC.
The DRC, and particularly the eastern provinces have been experiencing large shocks in their
population since the 1990s, which have destabilized the fragile ethnic balance in the Kivus.

6
The term Sud Kivu is used throughout to refer to the official administrative entity, rather than South Kivu.
7
FAO (2009).
8
Bukavu was established in 1901 under the Belgian colonial administration. Originally named Costermansville (or
Costermansstad) until 1954, it had a prominent European population under colonial rule.
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9 | P a g e
These shocks include: (i) the arrival of nearly one million Rwandan refugees in the aftermath of
the 1994 genocide; (ii) the refugee movements of over 400,000 Congolese to neighboring
countries; and (iii) the internal displacement of over three million people due to the internal
conflicts.

Table 2: Sud Kivu: Evolution of Population (1984-2008)

Source: UNDP (2008), FAO (2009)

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11 | P a g e
1.2 Describing current GDP composition
Reflecting the largely rural nature of the province, the primary sector is by far the largest
contributor to Sud Kivus GDP (66.2 percent in 2008), followed by the tertiary sector (22.4
percent) and the secondary sector (7.7 percent) (see Table 3). Within the primary sector,
Agriculture dominates, making up about 63.3 percent of GDP in 2008.
Instability and uncertainty led to poor economic growth performance in Sud Kivu during the
period 2006-2008, during which time all the three main sectors accumulated real output losses.
The primary sector, which most of the population depends on for its livelihood, shrank by 29.7
percent over the period. This reduction was largely driven by poor performance in agriculture
and fishing. Agriculture, which represented 64.4 percent of GDP in 2008, decreased by 29.9
percent over the period, and fishing, which represented 0.2 percent of GDP in 2008, decreased
by 44.5 percent over the period. These reductions were only partially set off by increases in the
livestock sector, which represented only 0.9 percent of GDP in 2008, but which increased by
36.5 percent over the period. The relative increase in the shares of both the secondary and the
primary sector in GDP, to the detriment of the primary sector between 2006 and 2008 is more a
reflection of the poor performance of mining and agriculture production rather than the result of
a buoyant industrial and trade activity.
Poor growth during this period represents a significant lost opportunity for the population of the
provinces. Reduction in agricultural production came during a time when international prices for
food were particularly high (particularly in 2007-08). Further, despite a sharp increase in the
prices for tin and tantalum, two of the most important minerals extracted in the province, mining
reported an accumulated loss of 41.4 percent over the period, second only to fishing, which had
an accumulated loss of 44.5 percent.
Table 3: Sud Kivu: GDP Composition 2006-2008 Constant 2006 Prices

2006 2007 2008 Accumulated
Growth
06-08
Millions
CDF
% of
GDP
Millions
CDF
% of
GDP
06-07 %
change
Millions
CDF
% of
GDP
07-08 %
change
I.Primary Sector 342,713 73.0 270,052 67.8 -21.2 247,090 66.2 -8.5 -29.7
I. Agriculture, fishing and
livestock
331,836 70.7 262,579 65.9 -20.9 240,221 64.4 -8.5 -29.4
A. Agriculture 328,127 69.9 258,217 64.8 -21.3 236,070 63.3 -8.6 -29.9
B. Fishing 1,172 0.2 860 0.2 -26. 7 707 0.2 -17.8 -44.5
C. Livestock 2,536 0.5 3,501 0.9 38.1 3,445 0.9 -1.6 36.5
II. Timber 131 0.0 188 0.0 43.1 252 0.1 34.4 77.5
III. Mining 10,746 2.3 7,286 1.8 -32.2 6,617 1.8 -9.2 -41.4
II. Secondary Sector 31,931 6.8 30,497 7.7 -4.5 28,859 7.7 -5.4 -9.9
I. Industrial Production 30,290 6.5 29,097 7.3 -3.9 27,569 7.4 -5.3 -9.2
II. Electricity Production 843.3 0.2 569 0.1 -32.5 544 0.1 -4.4 -36.9
III. Water Production 654.9 0.1 651 0.2 -0.6 674 0.2 3.5 2.9
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12 | P a g e
IV. Infrastructure 142.5 0.0 179 0.0 25.9 72 0.0 -59.7 -33.8
III. Tertiary Sector 87,959 18.7 87,722 22.0 -0.3 83,602 22.4 -4.7 -5.0
I. Trade 85,269 18.2 84,663 21.3 -0.7 80,749 21.6 -4.6 -5.3
II. No Trade 2,689 0.6 3,058 0.8 13.7 2,852 0.8 -6.7 7.0
prices
469,493 100.0 398,386 100.0 -15.1 373,018 100.0 -6.4 -21.5
Figure 1: Sud Kivu: Evolution of Sector GDP, 2006-2008
A
M
l
1 S

1.3 Explaining Growth Collapse
Prior to the collapse of the economy due to years of conflict and instability, Sud Kivu had a
relatively strong, diverse economic base. The province was an important industrial agriculture
producer (sugar, cotton, tea, quinquina, coffee and cattle) and a food exporter for the rest of the
country (banana, potato, sorghum and millet.) The province also boasted of a lively industrial
mining sector, which exported gold, tin, coltan and cassiterite. Sud Kivu was the first exporter of
tin in the country,
9
at a time when the DRC was the seventh larger tin exporter in the world.
Bukavu was also an important center for services and trade, connecting Orientale, Maniema and
Katanga with eastern Africa. Goods arrived into Bukavu by road from Orientale and Maniema,
and transited through the port of Kalundu/Uvira on Lake Tanganyika via Katanga to Tanzania.
From Bukavu, a road connected the eastern region to the nearby Trans-African Highway
crossing into Rwanda, Uganda and into the port of Mombassa in Kenya.

9
As Gecamines in Katanga, the Socit Minire et Industrielle du Kivu (Sominki) was the main industrial entity
exploiting tin and gold mining in Nord-Kivu and Sud-Kivu.
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13 | P a g e
With the onset of the conflict during the 1990s and continuing instability, the economic situation
in Sud Kivu has much worsened. The province has lost her intra-regional trading position. Even
mining has seen its production levels decrease in both 2007 and 2008. Moreover, the control of
the mining resources by armed groups has created huge negative externalities for the Province in
terms of social disruption, insecurity and environmental degradation.
As the paper will show further below, conflict and insecurity represent the over-arching and
crosscutting constraint to growth in Sud Kivu. Applying the HRV framework, the paper will
show how the conflict has disrupted every aspect of the economy and affected the livelihoods of
the provinces population. Indeed, each node of the HRV decision tree has been affected by
the long-lasting impact of the conflict: directly and indirectly, dynamically (e.g. through long-
term demographic imbalances) and statically (direct causal impact.) In that context, any
approach to peace and conflict reconstruction in eastern Congo must take into account the
transversal components to the conflict.

1.3.1 Conflict and disruption
Sud Kivu has had a very unstable political environment since 1994, following the arrival of the
Rwandan refugees. Political events in Burundi, especially since the assassination of President
Ndadaye in 1993, have also affected the Province. Major combat hostilities formally ceased with
the signing of the peace agreement of January 2008
10
. However, peace has yet to come to the
Kivus, as the national army (the FARDC) and its allies are still fighting with the rebel militia
group, the FDLR
11
.
The violence in eastern Congo is destroying both the economic and social fabric of the society.
12

The brutal and blind violence against women is destroying their own lives but also those of their
families, their communities, creating a cycle of trauma, lower productivity, and further violence
and disruption. The dissolution of rural communities destroys the engrained social relationships
that maintain the sustainability the rural world. Low-intensity conflict and instability in Sud Kivu
are likely to continue, as the disarmament and re-integration of the ex-combatants draws out.
Further, the resettlement of a large number of refugees
13
and IDPs
14
is an important challenge,

10
The peace deal between the Government and Laurent Nkundas forces was signed on 23 January 2008 and
included provisions for an immediate ceasefire, the phased withdrawal of all rebel forces in North Kivu province,
the resettlement of thousands of villagers, and immunity for Nkunda's forces. Laurent Nkunda was an officer in the
rebel Rally for Congolese Democracy (RCD), Goma faction, in the Second Congo War (1998-2002). In 2003, with
the official end of that war, Nkunda joined the new integrated national army of the transitional government as a
colonel and was promoted to general in 2004. He soon rejected the authority of the government and retreated with
some of RCD-Goma troops to the Masisi forests in Nord Kivu.
11
In fact, neither the Democratic Forces for the Liberation of Rwanda nor the Rwandan government took part in the
2008 peace talks.
12
Interview by the authors with Dr. Mukegwe. Bukavu, DRC. 20 October 2009.
13
1.2 million refugees from Rwanda have arrived to Sud Kivu since the Rwnada Genocide of 1994 (ACF, 2009).
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14 | P a g e
one that will likely take many years to resolve. As recently as October 2009, DRC refugees
residing in Burundi were pushed back into Burundi when they attempted to return, creating
chaos and tension
15
.
1.3.2 Conflict and the resource curse
The on-going conflict has been closely linked to the exploitation and illicit trade of natural
resources in the Eastern Congo. Armed groups, as well as units and commanders of the FARDC
appear to be involved in the exploitation and trade of minerals in North and Sud Kivu (see Figure
2)
16
. In some areas, the FARDC has used civilians to exploit the raw minerals.
Apart from the physical control over the mineral trade, armed forces (including the FARDC,
according to the UN and human rights groups) have resorted to extortion in the form of taxes and
fees to profit from the territories they control in the province (see Figure 2). The implications are
profound. The armed groups not only terrorize, but they also expropriate and extort resources
from the populations. According to human rights groups, the national army has been guilty of
committing many of the same exactions and extortion.
Figure 2: Sud Kivu: Presence of Armed Groups and Localization of Mineral Resources

Source: IPIS, 2009 Notes: Forces Dmocratiques pour la libration du Rwanda; Forces Armes de la Rpublique
Dmocratique du Congo; Rasta; Rasta Area; Mineral Deposits; Red Line: Coltan; Yellow line: Gold

14
There are currently 3 million internal displaced persons in the Congo (ACF, 2009.) UNHCR estimates that there
are 1.46 million IDPs in the DRC, about 300,000 of which reside in Sud Kivu.
15
http://www.irinnews.org/
16
Global Witness, 2008. Control of mines by warring parties threatens peace efforts in eastern Congo. Available
at: http://www.globalwitness.org/media_library_detail.php/663/en/control_of_mines
SUD kIVU
8UkAVU
NCkD kIVU
kWANDA
8UkUNDI
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15 | P a g e

Figure 3: Sud Kivu: Army presence and Roads

Source: IPIS, 2009
Notes: see above. also Black Line: Main Roads; Grey Line: Secondary Roads; Brown points: Dirt Roads

1.3.3 Insecurity and the collapse of the rural economy
Similarly, the agricultural sector, which supports the livelihoods of most of the provinces
population, has been strongly affected by the presence of the armies and combatants, both in
terms of their ability to produce and to transport their goods to market
17
. Many of the armed
groups have resorted to a policy of scorched earth, looting and burning crops and stealing
thousands of cattle heads
1819
. The impact of the conflict on small-scale and industrial cattle-
raising farms has been devastating for the economies of both Sud and Nord Kivus
20
.
As a result of the tenuous security situation, the population has sought refuge in the relative
security of urban areas, thus contributing to the collapse of the agricultural sector. Primary and

17
Musila, C., 2009. Kivu, Bridge Between the Atlantic and Indian Oceans Institut Franais des Relations
Internationales.
18
Visit to Uvira. Uvira, DRC. 17 October 2009.
19
Interviews with provincial officials on condition of anonymity. Bukavu, DRC. 17 October 2009.
20
In Goma, in North Kivu, a member of the Association of cattle farmers (ACOGENOKI) told the authors that he
lost over 7.000 heads of cattle in less than a week, during the first Congolese war as foreign armies passed through
North Kivu on their march to Kinshasa. Interviews by the authors. Goma, DRC. 23 Oct. 2009.
kWANDA
8UkUNDI
8UkAVU
SUD kIVU
NCkD kIVU
224
16 | P a g e
secondary urban centers are under the control of the Congolese Army or free from the presence
of armed forces. By opposition, rural areas have come under the control and the authority of the
former FDRL
21
. This situation pushed people away from the rural areas in search of security and
protection in the main cities. As a result, population is disproportionately concentrated in urban
areas, where density has swelled. The province two main urban centers (Bukavu and Uvira)
today count nearly 7,000 inhabitants per km compared to an average density of 70 inhabitants
per km across the Province
22
.

While the major agricultural centers are located close to the roads, these roads are controlled by
the armed forces, as seen on the map above. Tea and coffee culture suffered from the conflict
five out of the seven major tea plantations in the Province have closed down in the last decade.
This has meant that not only are fewer farmers are producing, but that farmers are less able to
transport their products to market, in order to meet the needs of the growing urban populations.

Further, the productivity of remaining farmers has been limited. Farmers have been unable to
import quality seeds and other intrants; the outreach efforts of the National Seeds Service
(SENASEM) within the Ministry of Agriculture have been particularly affected
23
.

Figure 4: Sud Kivu: Source of Household Revenues Before and After the War

Source: Action Contre la Faim (2008)
Note: Before war refers to 1995, as the first major phase of the conflict began in 1996.

21
IPIS (2009).
22
UNDP (2005).
23
UN (2009). The SENASEM is responsible for distributing seeds, fertilizers and inputs to seed multipliers through
a World Bank-sponsored project.
225
17 | P a g e
Although there has been little change in the most important activities in the Province since the
prewar era (1995) their relative proportion has changed (see Figure 4). Specifically, the share of
agriculture relative to income dropped from 46 percent to 36 percent; livestock dropped from 19
percent to 13 percent; fishing was halved from 10 percent to 5 percent. This further suggests that
the population in Sud Kivu has been diversifying their activities away from traditional rural
activities. This evolution was most likely forced by the exogenous shock of the wars rather than
by some endogenous decision. The exogenous shock took the form of the loss of property and
land assets, and of increased insecurity resulting from the conflict (i.e. expropriation of land and
natural resources by the armed groups.)
This movement away from more traditional (and stable) economic activities is also evidenced by
data contained in Table 4. In 2005, Sud Kivu was the province with the lowest percentage of
households owning agriculture exploitations in the DRC. While this diversification in sources
of income may not be a negative outcome per se, poverty in Sud Kivu is much higher than in
other provinces, both in rural and urban areas; and, it is extremely high in urban areas compared
to the national average. Thus, it seems this forced diversification in sources of income was
enforced by the exogenous costs of the war, affecting the social welfare of the population. Due
to the weak investment climate and continuing instability, the shift away from agriculture has not
been matched by greater industrialization or growth in services.
Table 4: DRC Selected indicators for agricultural exploitations

% of Households
having an agricultural
exploitation
Number of
Effective
workers
Labor Cost
(000 of CDF)
Bas Congo 55.4 2 365
Bandundu 75.1 3 382
Equateur 72.6 2 609
Orientale 56.7 3 478
Nord Kivu 44.7 3 1.269
Maniema 55.1 2 527
Sud Kivu 44.5 2 468
Katanga 57.3 2 1.655
Kasa Oriental 56.2 3 1.196
Kasa Occidental 61.4 3 545
Source: Enqute 1-2-3, (2004-2005)
Despite the apparent exodus of the population from the countryside, landholdings among
remaining farmers continue to be small. In fact, the average cultivated area per household in
Sud Kivu is 0.59 hectaresunder the minimum required to achieve food security for a year for
the average household in Sud Kivu (six members) (see Table 5). Sud Kivu indeed ranks as
severely insecure in terms of food security, according to the FAO; almost 12 percent of its
population is considered severely insecurethe highest ratio in the DRC compared to the
national average (4.4 percent), North Kivu (5.6 percent) and Maniema (4.5 percent.)
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18 | P a g e
Table 5: Sud Kivu: Food security & land size
Tons/Ha Kcal/100g Minimum Land* Land Deficit**
Groundnut 1.34 567 0.6 0.01
Corn 3.5 350 0.37 -0.22
Beans 0.87 335 1.57 0.98
Soy 1.04 416 1.05 0.46
Source: ACF (2008)
*Minimum Land size to secure food for one year for a 6-member household.
**Minimum Land Size minus 0.59, the average land size in Sud Kivu.

1.3.3 Insecurity and the degradation of the investment climate
Beyond the primary sector, the wars in eastern Congo have reduced returns to economic activity,
by destroying infrastructure and disrupting the trade of merchandises and free movement. The
Lake port of Kalundu in Uvira (on Lake Tanganyika) was reportedly looted by elements of the
Rwandan army. The troops reportedly looted the cranes and any other equipment they could
take back to neighboring countries; they also destroyed the docks and warehouse facilities at the
port. The port today still runs albeit at very low capacity due to the looting and a near total lack
of investment. It is worth noting that a few private investors have invested in new private port
facilities nearby
24
.
Table 6: DRC: Private Investment, in number of projects (2003-2008)
25

2003 2004 2005 2006 2007 2008* Total %
Kinshasa 39 49 51 46 53 46 284 44.5
Inter-Province 40 36 26 19 10 21 152 23.8
Katanga 15 6 12 9 18 25 85 13.3
Bas-Congo 8 8 5 5 5 8 39 6.1
Kasa Oriental 7 2 3 4 2 1 19 3.0
Nord-Kivu - 2 - 5 4 3 14 2.2
Equateur 1 2 2 2 3 1 11 1.7
Bandundu 1 3 3 0 0 0 7 1.1
Orientale - 2 - 3 1 2 8 1.3
Sud-Kivu - 1 - 2 2 1 6 0.9
Maniema - - - 0 0 3 3 0.5

24
Visit to Kalundu. Uvira, DRC. 19 October 2009. On the day of the teams visit, the port showed a little bit of
activity; workers were unloading merchandises by hand. The authors were shown the new docks that had just been
rebuilt with the meager operating reserves. The authors also saw new private port facilities, next to the old port.
The new facilities were used for fuel. Another private port terminal was used for warehousing sugar imports.
25
ANAPI does not support projects in the mining or timber sector.
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19 | P a g e
Total 112 114 104 96 100 112 638 100.0
Source: ANAPI (2008)
*Ongoing and completed projects.

In terms of private investments in the province (see Table 6), Sud Kivu has not attracted any new
investment since 2003 outside of the mining sector, and less than one percent of the new
ANAPI-sponsored investment projects have gone to the provincea weak performance in
comparison to North Kivu, which has had similar socio-political challenges and opportunities
and which attracted more than twice the number of investments. In 2009 the Banro Company
decided to begin construction of the Twangiza mine on one of the Sominki concessions. The
company estimates the capital cost for the first phase of the project at about US$145 million.
26

In summary, Sud Kivu is not attracting private investment in the productive sectors other than
mining and servicesthe later sector relates to the tourism and hospitality industry (i.e. hotels
and restaurants) and caters essentially to the large UN and NGOs community. Based on
anecdotic evidence, the few enterprises still operating are not expanding their investment plans.
In addition to the destruction of the productive physical assets, the conflict had a huge cost on the
human capital
27
. It directly affects the availability of human capital in the province, by forcing
large population migrations, by forcible recruitment of population in their most productive years
and/or the forcible recruitment of child soldiers. Another long-term demographic impact of the
conflict is the disruption to education: as students and teachers are forcibly recruited as soldiers,
forced to flee.
A picture of comparative sources of income also shows an increase in short-term commercial
activities like small commerce, retail trade in palm oil and charcoal, as well as day-laboring
activities such as journeyman, which increased from 3 percent to 18 percent. In sum, the conflict
and important demographic changes are pushing the population towards more activities and
livelihoods that are more precarious, volatile and less capital intensive. Today labor-for-rent
make up to 65 percent of the total household income vs. 26 percent before the war
28
.

26
It is estimated that annual production from this first phase plant will be around 100,000 ounces of gold per annum
at a total operating cash cost of less than US$350 per ounce.
27
These include: increased difficulty in accessing basic social services and infrastructure due to the destruction of
the infrastructure and the lack of human capital; the spread of STDs and HIV/AIDS first due to the systematic
campaign of rape and to the rising prevalence of prostitution as a means of subsistence; surge of epidemics and
preventable diseases; growing number of vulnerable groups (i.e. widows, orphans, etc.)
28
ACF (2006).
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20 | P a g e
2. Poverty Profile
2.1 Poverty Incidence
Sud Kivu is the third poorest province in the DRC. With a poverty incidence of 84.7 percent
compared to the national average of 71.7 percent, Sud Kivu scores behind Equateur (93.5
percent) and Bandundu (90 percent)
29
. The precarious livelihoods in the urban areas call for
urgent action, particularly in the realms of health and education.
Sud Kivu scores low on all three poverty measures examined (Figure 5)
30
. Sud Kivu presents
substantially higher poverty levels compared to the national average using the headcount ratio,
but this difference is narrowed with the use of the indicators of intensity. The Province has a
larger population below the poverty line vis--vis the rest of the country, but poverty severity
appears to be similar.
Figure 5: Poverty
a) Sud Kivu vs. DRC: poverty levels

b) Sud Kivu: urban and rural poverty



Both urban (84.6 percent) and rural (84.7 percent) poverty rates are high in Sud Kivu (see Figure
5 .b.) In particular, urban poverty is extremely high compared to the national average (61.5
percent.) Urban poverty in Sud Kivu (84.6 percent) is the highest on a national level, even
higher than urban poverty in Equateur (83.5 percent), the poorest province in the DRC. These

29
All the poverty figures used in this report are estimated using the 1-2-3 surveys. The survey was conducted in the
DRC provinces in 2005 when some areas were still under military conflict. For this reason, the provinces of
Maniema, North Kivu and Sud Kivu surveyed only the capital cities (Kindu, Goma and Bukavu.) As result, only one
poverty level is available for the entire Sud Kivu (85%), with rural and urban poverty being the same (84.6% vs.
84.7%), as it measures poverty in urban/rural Bukavu. Based on the teams observations while visiting some rural
areas of Sud Kivu and the city of Uvira, these figures may be under-estimating the incidence of rural poverty and
therefore of total poverty levels in Sud Kivu.
30
Headcount ratio provides the proportion of the population living with income per capita below the poverty line.
Poverty gap indicates the average distance of the poor population from the poverty line, and squared poverty gap
takes into account the intensity of poverty.
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21 | P a g e
statistics appear to be consistent with the fact that a substantial amount of poverty in Sud Kivu is
the result of population displacement into the cities, particularly into Bukavu the main city and
capital of Sud Kivu.
Urban unemployment in Sud Kivu is twice the national average (22 percent versus 11 percent
31
.)
Moreover, the unemployment rate is higher in urban areas of Sud Kivu than in rural areas (6.9
percent in rural areas vs. 15.3 percent in the cities.)
Moreover, the population reportedly unemployed, inactive and retired represents an important
share of the poor in Sud Kivu (see Figure 6). Indeed, 89 percent of the families whose head of
the household is in this group are below the poverty line, above averages for the rest of the
country (67 percent), North Kivu (76 percent) and Maniema (52 percent). The forced migration
pressure in Sud Kivu has impoverished urban centre putting a stress on resources (food, housing
and jobs) in contrast with other provinces where urban areas are characterized by lower poverty
levels.

Figure 6. Poverty level among the
unemployed, inactive or retired

Source: UNDP 2009, using 1-2-3 Survey (2004-2005)

Sud Kivus poverty ratios have a clear policy implication. The priority for reducing poverty in
the short-term should focus on meeting basic social needs in urban centers.
2.2 Poverty and education
The explosive migration to urban centers in Sud Kivu not only generated an immediate increase
in poverty levels, it also interrupted the provision of schooling for a significant proportion of
childrenwhich by itself may have a long lasting effect on poverty levels. Recent statistics bear

31
UNDP (2009).
230
22 | P a g e
this out. Figure 7 shows comparative enrollment rates across provinces. The differences are
striking, and necessarily bear implications for long-term poverty reduction strategies. Sud Kivu
presents extremely low enrollment rates10 point under the national average, 15 points below
high performer Bandundu (who also has comparable levels of poverty), and below those of
Maniema (especially for girls) although it fares better on this score than North Kivu. It is hard
to imagine that higher rates of growth will reduce poverty in Sud Kivu and/or improve
educational outcomes, unless they are coupled with targeted social policies.
Figure 7: Sud Kivu vs. other provinces and DRC: Enrollment rates

Source: MICS-22 (2001)

2.3 Poverty and health

According to Figure 8.a, the percentage of children vaccinated in Sud Kivu is low compared to
the rest of the country. As much as one third of children in Sud Kivu have not received a single
vaccination. In Bandundu, with similar poverty rates, the situation is exactly the opposite. Figure
Figure 8.b is consistent with the analysis, showing that the number of people seen at health
centers is almost three times higher in Sud Kivu than in Bandundu, and also much higher than in
North Kivu and Maniema; and, about 1.7 times the average of the country.

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23 | P a g e
Figure 8: Health
a. Vaccinated Children: Sud Kivu vs. DRC
Source: Enqute Dmographique et de Sant (EDS RDC 2007)

b. Population/Health Centers: Sud Kivu vs. DRC

Source: DRC ministry of health (DRC PER, 2007)

With some improvements in the security situation, however, health indicators, particularly those
tied closely to household welfare, appear to be rebounding. As Figure 9 shows, significant
improvements were shown in the rates of stunted children, due notably to malnutrition, from
2001 to 2007. While these rates remain high, recent improvements indicate that when economic
growth and wellbeing return to the population, important improvements in health will follow.

Figure 9: Stunted children under five

Source: MICS (2001) and DHS (2007)
Health outcomes in Sud Kivu are poor, due to lack of access and low household income. While
improving household welfare by actions targeted at economic growth will be an important part of
improving health outcomes in the near to medium term, additional actions will also be needed to
be taken in order to strengthen access of the population to health services.
2.4 Summary
Improving access to education and health services is an urgent task to start to reverse the
effects of years of instability and to avoid a prolonged humanitarian crisis. These are not
binding constraints in the perspective of the HRV framework, but represent binding constrains
for poverty reduction and sustainable growth.
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24 | P a g e
3. Applying the Growth Diagnostics Framework

the potential constraints they might constitute for growth and private investment. The chapters
below will discuss whether the most binding constraint lies in: (1) poor access to finance; (2) low
return on economic activities; or (3) low appropriability of returns on investment.
3.1 Is access to finance a binding constraint?
The impact of the conflict in terms of finance has been devastating, the financial system having
ceased to operate in the province. The study, however, notes several paradoxes with regard to
finance suggesting that the financial sector in Sud Kivu may be more resilient than could be
expected. Bukavu, for instance, counts five commercial banks. Sud Kivu holds the highest
percentage of households with access to working capital in the country, as Table 7 shows. Also,
credit finance (from commercial banks and family-owned funds) is more readily available in Sud
Kivu than in other provinces (see below.) One possible explanation would be the ability for
entrepreneurs in the Kivus to get credit finance from their family/ethnic alliances (i.e. Tutsis) in
Burundi and Rwanda
32
.
Table 7: DRC: Access to credit for working capital

% of
Households
with access
Purpose Source
Production Operation
Commercial
Bank ONG
Parents/
Friends Tontine
Bandundu 0.2 100 0 0 100 0 0
Orientale 1.9 61.7 22.2 2.2 0 1.3 16.6
Nord Kivu 1.3 24.3 1.6 0.5 15.6 1 5.4
Sud Kivu 6.5 25.1 31.2 3.9 0 3.5 0
Katanga 4.1 27.7 1.6 1.9 6 2.5 14.1
Kasai Oriental 0.7 91.1 0 0 0 0.7 0
Kasai Occidental 3.1 0 4.9 15.5 21.8 0.2 40.5
Source: Enqute 1-2-3 (2004-2005)
The study should note, however, that the size of the loans is small, at about the average
comparable to those of other poor provinces like Bandundu and Orientale, and about half the
size of the average credit in North Kivu.
Further, there are no loans for potential investment projects in rural areas, and most loans are
concentrated in cities. Through the perspective of the HRV framework, it might be argued that

32
As the authors were able to observe during their field visit, many firms and NGOs hold current bank accounts in
neighboring Burundi and Rwanda.
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25 | P a g e
small loan sizes, and gaps in access throughout the country are actually a symptom of another
problem, that of security. In some cases, banks may not feel comfortable financing projects
unless these can get repaid in case of (partial) asset destruction. Collaterals on credit finance are
very high and are usually required to be safely out of the country, so volatile and random have
violence and destruction been.
While further analysis should be devoted to the issue of how banks assess the risk of operating in
a conflict zone, we may conclude that lack of finance is a limiting factor, but not the current
most binding constraint to growth in Sud Kivu.

3.2 Is it lack of social returns to economic activity?
3.2.1 Is infrastructure the binding constraint?
Sud Kivu lost its role as a central economic hub for Maniema, Kisangani and Lake Tanganyika
that was undisputed until 1988. It suffers today from a difficult access to the seaport of
Mombassa
33
, and from a poorly maintained infrastructure network that has been further degraded
by the wars and the insecurity in the region. While it represents an important obstacle to
commerce and investment, infrastructure is not the most binding constraint at the moment.
Roads
Roads in Sud Kivu are in very bad condition, as illustrated in Table 8. Moreover, 64.4 percent of
the dirt roads connecting rural and urban areas as well as within rural zones are in a bad
condition. The deterioration of the rural roads is such that it is a distorting factor in the urban
market prices of agriculture products, such as palm oil, which is transported by plane from
Shabunda to Bukavu. The network of paved roads is not in much better condition. The national
route N2 connecting Goma-Bukavu, Bukavu-Mwenga and Bukavu-Uvira (via Rwanda) is also in
very degraded. In the past, the private sector was the sole provider of infrastructure public goods
(road construction and maintenance), but has since stopped due to lack of finance and the
presence of militias. About 40 percent of villages are more than ten hours distant from the
districts main urban centers, while 20 percent of villages are more than twenty-four hours away.
Table 8: Sud Kivu: Roads (kilometers)
Good Fair Bad Total
Paved 149 55 17 222
Dirt 321 260 1,051 1,632
General Total 470 315 1,068 1,854
Source: Monographie de la Province du Sud Kivu (2005)

33
Once an alternative for the producers of Sud Kivu, the sea Port of Dar-es-Salaam is today unreachable due to the
problems of the Tanzania railway companies.
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26 | P a g e
Basic infrastructure
Sud Kivu presents relatively good access to basic infrastructure such as hospitals and sanitary
centers and also to markets (see Table 9). But, the province ranks at the bottom when measuring
distance to a cyber cafmost likely a result of the lack of penetration of this kind of technology
and the absence of electricity, particularly in conflict-affected areas.
Table 9: Sud Kivu: Households with access to infrastructure at a reasonable distance

Market less
than 5km
away
Sanitary Center
less than 2km
away
Hospital less
than 10km
away
Kinshasa 98.6 99.6 99.6
Bandundu 58.5 50.9 51.3
Orientale 71.5 68.4 52.4
Nord Kivu 84.2 86.6 75.6
Sud Kivu 88.8 85.7 70.1
Katanga 74.1 63.9 53.9
Kasai Oriental 90.7 95.6 85.2
Kasai Occidental 95.2 84.7 100
Source: Enqute 1-2-3 (2004-2005)

Electricity
Sud Kivu shows an electrification rate of 2.5 percentmarkedly lower than the national average
rate of 10.3 percent. Consistent with this low electrification ratio, electricity provision is
extremely low in the main urban centers: less than 20,000 consumers in Bukavu and some only
6,000 consumers in Uvira
34
. Such low ratios of electricity penetration may be explained by the
pauperization of the population (and lack of any purchasing power) and the high shadow prices
to capital for infrastructure investments in a conflict-affected province.
Summary
Infrastructure appears to be a serious constraint to the economy of the Province, particularly
electricity and roads. However, until and unless the most binding constraint of security is
removed, improving infrastructure would not yield the biggest pay-offs in terms of growth
for the province. As long as the armed groups maintain their hold over the resources and the
roads that offer key axes for communication and trade, the economic recovery of the province
will continue to be stifled. The infrastructure facilities that exist, for instance the port of Uvira-
Kalundu, function at only a fraction of their pre-war capacity due to investors concerns over
insecurity and rebel attacks.

34
Monographie de la Province du Sud Kivu.
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27 | P a g e
3.2.2 Is It Human Capital?
Figure 10 shows deterioration in the stock of education for younger cohorts (under 30 years)
compared with older cohorts (between 30 and 50 years.) This trend is indicative of an
educational system that is unable to enroll and/or retain students. Sud Kivu lost the human
capital advantage it had over the rest of DRC, as measured in higher average years of education
in the population. The trend was without doubt aggravated by the conflict, though the decline
actually began before 1996. Given the fact that the 1-2-3 surveys have data only for Bukavu, it
is likely that this picture is actually over-estimating the stock of human capital in Sud Kivu.
Figure 10: Average years of education

One way to explain the deterioration in the stock of human capital is to evaluate the returns to
education relative to the rest of the country. One extra year of education in the province yields
no increase in wages, whereas in the rest of the DRC one extra year of education adds on average
6 percent to the workers wages
35
. What this result shows is that in pure economics terms,
investing in ones education would yields no returns in Sud Kivu. The HRV framework should
conclude that human capital is not a binding constraint in Sud Kivu. If it were a constraint,
firms will be competing to hire more highly educated workers by increasing their wages, in
effect paying a premium for education. This is not happening in the labor market in Sud Kivu.
Figure 11 confirms that workers in Sud Kivu are not in scare supply, and therefore, salaries for
both qualified and non-qualified workers are below market in Sud Kivu. Similarly, the premium
for qualified workers is substantially lower in Sud Kivu relative to the rest of the country, as
shown by the estimated return for one extra year of education.

35
Authors calculations based on Enqute 1-2-3 (2004-2005).
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28 | P a g e

Figure 11: Workers compensation by qualification

Looking at human capital by gender, education in Sud Kivu is below the national average, for
both male and female (see Figure 12). The figure below illustrates the discrimination against
women in terms of access to education. In Sud Kivu, only 1.7 percent of the female population
(age 15-49) completes secondary education, compared to 8.5 percent for men. Nationally, 6.1
percent of women in the same age cohort complete secondary education.
Figure 12: Human capital by gender: Sud Kivu vs. DRC

Employment
As discussed in the chapter on poverty, urban unemployment in Sud Kivu is twice (22 percent)
as high as the national average (11 percent), and it is particularly high in Bukavu (28.3
percent)
36
. These high rates of urban unemployment are a consequence of a work supply fleeing

36
UNDP (2009).
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29 | P a g e
the war-affected rural areas for the safety of the larger urban centers. Indeed, as Figure 13 shows,
women are more likely to work in agriculture than men, and yet, in the case of Sud Kivu, the
proportion of both male and female workers in agriculture is low compared to national averages
and to Bandundu.
Figure 13: Workers in the agriculture

Summary
Even if the stock of human capital is very low in Sud Kivu, there is not enough evidence to
conclude that low human capital represents a bottleneck for private investment and
economic growth. It is evident that the forced exodus from the conflict zones in rural areas is
constraining the labor supply and further investment in the agricultural sector. But investments
would not come to the province, based on the characteristics of the labor market. For most
private entrepreneurs, the armed forces should be withdrawn from the Kivus, before peace and
security could returnand they could consider investing. Only when security returns, said one
private entrepreneur, will industrial agriculture start again and become the profitable venture that
is once were in the Kivus
37
.
Security is also constraining poverty reduction. Many of the unemployed workers would return
to their towns and villages once security returns, reducing the pressure on urban centers. No
other factor has created more poverty and then perpetuated it than the military conflict in the
region.
3.3 Is it the inability to appropriate the fruits of investment?
Do entrepreneurs fear appropriating the fruits of their capital and, consequently, refrain from
investing in anticipation of such problems? Appropriability constraints may stem from
extortion in the form of taxes or corruption, as well as from a breakdown of the rule of law.
They may also stem from negative externalities in information or coordination of markets.

37
Interviews by the authors. Kinshasa, DRC. 28 October 2009. Also Bukavu, DRC. 17 October 2009.
238
30 | P a g e
The impact of the wars has been dramatic and all encompassing, from the perspective of
appropriability issues, making the rule of law (in general and specifically, as regards property
rights) impossible to uphold. Assets were lost as a result of destruction, confiscation or extortion
(illegal taxation.) Contracts became un-enforceable. Even traditional and customary law became
null. As might be expected, inflation and economic instability increased, as the result of the
conflict more than in the rest of the country. From a dynamic and long-term perspective, land
rights and property were affected, so were populations who were pushed in displacement and
uprooted-ness from traditional community networks of support and economic structures. The
conflict has also left a terrible legacy and immeasurable consequences from the systematic rape
and violence against women.
3.3.1 Is it Government Failures?
The study will further address government failures in the national context, looking at issues of
taxation and regulations; corruption; macro-risks of monetary instability and inflation. Data on
governance and corruption is not available at the provincial level.
Rule of law
Looking at other appropriability risks to private investment, the authors conclude that violent
conflict was most destructive force in the Kivus, and that the collapse of the rule of law and the
insecurity of physical assets are to account for the structural breakdown of the economy.
To this day, security has not been restored due to low-intensity conflict and the roaming of
armed groups in the province. Beyond demobilization efforts, the decentralization of crime
and violence will continue to pose serious challenges to restoring law and order.
Security levels remain low in absolute terms. Violent crime and rape remain high and are
decentralized among many groups. At the time of this writing, the GoDRC was still
conducting a MONUC-backed military offensive begun in May against the FDLR (Operation
Kimia II). As a result of that operation, the security level is often raised to high security phases,
indicating restricted travel outside the main cities. In recent weeks, human rights groups have
called on the UN to cease its military support to the operation, which they claim violate human
rights and have inflicted enormous civilian casualties
38
(see HWR Map below.)
Security on the roads outside Bukavu is precarious. During the preparation of this study, the
authors came upon a group of armed rebels around Kahuzi-Biega. The men tried to extort hard
currencies from them, then not getting what they wanted, began shooting in the air and encircling
the vehicle. On that particular instance, it was later learned that the FADRC and MONUC

38
Human Rights Watch. December 2009. You Will Be Punished: Attacks on Civilians in Eastern Congo. See
also, HRW. December 2009. UN: Act to End Atrocities in Eastern Congo: Security Council Should Urgently
Deploy a Civilian Protection Expert Group. Accessed at < http://www.hrw.org/node/87208>. Also, BBC. 2009.
Campaign group Human Rights Watch urges the UN to stop supporting a DR Congo campaign against Rwandan
rebels. Accessed at < http://news.bbc.co.uk/go/em/fr/-/2/hi/africa/8411192.stm >
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mounted a military operation to neutralize the said rebels who were supposedly decommissioned
rebels but disgruntled over late pay.
Instability and conflict have resulted in many negative secondary effects, leading to a vicious
cycle of conflict, dis-investment, and poverty. Investment projects have avoided areas where
insecurity is high, concentrating instead on areas more insulated from theft and destruction.
Similarly, entrepreneurs have adapted their activities to the insecurity challengese.g. by dis-
vesting and/or importing finished products instead of risking the destruction of their industrial
assets. The sugar industry may have thus collapsed in the Sud Kivu, because private
entrepreneurs opted to cut their losses. Security concerns limit the size loans and coverage of
rural areas, thus limiting the ability of finance to revitalize rural development. At the household
level, livestock and crops were repeatedly looted. Insecurity has contributed to poor educational
and health outcomes. In sum, the release of most of the other constraints in the economy
depends critically on resolving the security situation. Thus, a lack of security appears to be
the most binding constraint to economic growth in the province.
3.3.2 Is It Market failures?
Self-discovery
According to HRV (2005), the development process in less advanced countries is largely about
structural change: it can be characterized as one in which an economy finds outself
discoverswhat it can be good at, out of the many products and processes that already exist.
Self discovery issues are potentially more important and the payoffs of addressing them are
much larger in the tradable sector, as the tradable sectors productivity can be scaled up to
supply world demand. A province (or a country) would be constrained by self-discovery if it
cannot find its niche; this is, if the country fails to discover its comparative advantage. We
dont see evidence of this in South Kivu.
Sud Kivu presents a striking paradox. Deeply scarred by the wars and on the line of fire for
decades now in the wars between Congo and its eastern neighbors, the population has showed
extraordinary resilience. Of the seven provinces visited in the course of this study, the Kivus
showed the most economic dynamism and entrepreneurship, a remarkable ability to self-start
profitable business ventures. Yet, as a result of the war, the FAO predicts that Sud Kivu could
face severe food insecurityanother paradox in one of the most lush and most irrigated
regions of the country.
Led by settlers, the region has long self-discovered profitable industries and developed the
regions economy. A small agro-forestry industry was developed at an early stage in the Kivus,
with forests of eucalyptus, gravilea, and black wattle. The Kivuans have also been growing
vegetables such as soy, green beans, and bananas, optimizing soil use
39
. Rice-paddies are
cultivated around the Ruzizi valley, in Sud Kivu. The Kivus have also long been active in trade.

39
Alain Huart & Chantal Tombu. Congo Magnifique. 2009.
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The Nande and Tutsi traders control an active trade between eastern Congo and Dar-es-Salaam
and Mombassa, on the Indian Ocean.
At the most artisanal levels, the Kivuans have invented the Tshukudua wooden open-
platform bicycle-cum-wheelbarrow of sorts that traders and sellers use to transport merchandise,
to great efficiency. A visitor to the Kivus would rarely spot the sights of men, women and
children carrying break-neck heavy loads of goods on their heads and backs, as in the rest of the
country. Riding a tshukudu requires special skills. At the end of the day, these re-interpreted
bicycles are parked in parking lots on the streets of Bukavu, Butembo, Beni and Goma.
Self-discovery has also happened at industrial scale, as the authors have seen in Bukavu and in
Beni, in North Kivu. In Bukavu, the pharmaceutical factory Pharmakina started by a German
investor produces the anti-malarial drug quinine and generic AIDS drugs. Pharmakina is the
largest private employer in town with over 700 full-time workers and about 1,000 temporary
workers occupied on 31 plantations. Pharmakina also exported the quinquina to Schweppes Co.
in the USA, for the production of soft drinks like tonic water.
40
In Beni in North Kivu, Enra
processes the papane, an enzyme from the papaya fruit used in the food and pharmaceutical
industries. Papane acts as a protein blade, cutting and separating proteins. Enra mainly
exports the finished papane crystals to Europe. Enra once had the number one position of
papane exporter in the world with up to 50 percent of the world market, operating from Beni
41
.
With both firms Pharmakina and Enra, vertical integration seems to have been less extensive
than other industrial/agri-businesses the authors have visited in the DRC. Pharmakina purchases
the raw material, the quinine plant, from local farmers with whom it has an agreement.
Similarly, Enra purchases the papaya fruits from cooperatives of farmers (some 5.000
households) around Beni. We may thus speculate that the tertiary sector was once developed
enough in the Kivus for firms to be complementary vs. fully integrated, in contrast to other
industrial agri-business, timber and/or cattle-raising firms in Bandundu, Bas-Congo and
Orientale provinces. Enra exports via the Mombassa port, while Pharmakina uses the airport in
Kigali (Rwanda.)
Self-discovery has been the strength of Sud Kivuand of North Kivu.
4. Conclusion
Sud Kivu and its sister province to the North are today left in a state of neither peace nor war,
with the central Government trying to assert its authority and reclaim the monopoly of
violence
42
, it has lost in the wars in eastern Congo.

40
Interview by the authors. Bukavu, DRC. 18 October 2009.
41
Interviews by the authors. Beni, DRC. 22 October 2009.
42
Rotberg, Robert defines failure as follows: Failed states have two defining criteria: They deliver very low
quantities and qualities of political goods to their citizens, and they have lost their monopoly on violence. Robert
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Security and stability in Sud Kivu remain extremely volatile, as rebel groups are active in this
area and further afield. As of December 2009, the FARDC/MONUC were still engaged in a
joint military operation Kimia II, to repel the rebels of the FDLR. Further closings of the
border with Burundi continue to affect refugees and returnees, adding to the overall instability
and climate of fear and uncertainty; delaying a return to normalcy and stability in Sud Kivu.
Years of wars and instability have left a lasting mark on agriculture and agro-pastoral activities.
43

Along Lake Tanganyika and the portion of the main road from Bukavu to Uvira, square
kilometers after square kilometers of land where cattle formerly grazed have been left burned to
the ground, the fields of maize destroyed, the once-green pastures abandoned.
In sum, lack of security and law and order are the most important factors behind Sud Kivus
economic collapse. Each of the nodes on the HRV decision tree is, in turn, affected and
provides signals of scarcity, because the armed conflictand the continued presence of armed
militias and groupshas so deeply damaged the economic system and the social fabric.
Security is also a binding constraint for poverty reduction, as it is insecurity what brought the
economic activity in the Province down and forced massive displacement that made urban
centers the poorest in the DRC and urban unemployment in the province twice the national
average. The precarious conditions of the population in the urban areas call for urgent
interventions in the field of health and education, lest urban poverty should become endemic. It
is unlikely that higher rates of growth by themselves will contribute to reducing poverty in Sud
Kivu and/or improving educational outcomes, unless growth-promoting policies are coupled
with targeted social policies.

Bates (2008) in his definition puts more weight on the monopoly of violence, but points towards the same basic
idea: the lack of State. Foreign Policy. 2009. Index of Failed States. Accessed at
http://www.foreignpolicy.com/articles/2009/06/22/the_2009_failed_states_index
43
As witnessed on a visit by the authors to Uvira on 19 October, 2009
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Policy Issues
The study has argued that security-related issues permeate every aspect of the economy in Sud
Kivu, and have created disruptions to a scale probably unique in the countryand perhaps, even
in the world. Neither economic growth nor poverty reduction is likely to occur if the area is not
secured.
Security must therefore be the first entry point of long-term reform and recovery in the Kivus.
The international community has been unable to bring the war in the Kivus to a stop, just as it
has not dealt with the phenomenon of armed groups that switch allegiances as they vie to keep
control of the Kivus natural resources.
The international community should promote long-term policy interventions targeting ex-
combatants and providing greater incentives for combatants to respect law and order rather than
picking up weapons to extort and terrorize civilians.
The US State Department has launched one such initiative using modern technology. Through
the use of mobile banking, it is using mobile telephones to wire the soldiers pay in Goma.
With just a mobile phone and a virtual banking transaction number, a soldier can receive his/her
pay at any mobile phone vending kiosks on the streets of Goma. If successful, such initiatives
would help stop leakages (i.e. corruption) that occur during the physical transport of millions
of Congolese francs in bags from Kinshasa, and in the long-term, encourage combatants to put
down their guns.
Better access to health and education will require urgent policy interventions in urban areas, as
displacement will continue to perpetuate poverty and prolonged humanitarian crisis in the Kivus.
Although bad outcomes in health and education do not pose binding constraints in the
perspective of the HRV framework, they do represent binding constraints for poverty reduction
and sustainable growth.
The study also touched upon an issue that would demand policy-makers attention; it is that of
the gender discrimination in access to education. In Sud Kivu, only 1.7 percent of the female
population aged 15 to 49 years completes secondary education, for 8.5 percent for men.
Nationally, 6.1 percent of women in the same age cohort complete secondary education.
Tackling these astounding social and economic inequalities should be a matter of long-term
priority for policy-makers.
Addressing the scars of rape should be a top priority of the international community, the central
and provincial governments, the private sector and local communities. Concerted interventions
must address the long-term implications on human development, but also agriculture (women as
breadwinners) and small-scale entrepreneurship. The Panzi Hospital
44
in Bukavu and Heal

44
Visit and interviews by the authors. Bukavu, DRC. 17-19 October 2009.
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35 | P a g e
Africa
45
in Goma have begun to tackle these long-term challenges, by providing training in
marketable skills like weaving and sewing to victims of rape as they may no longer be able to
return to their fields.
Looking at potential policy interventions aimed at restarting the markets and private
investment, a first low-hanging entry-point would be to provide oxygen to firms such as
Pharmakina in Sud Kivu and ENRA in North Kivu, as well as to farmers and entrepreneurs
along the chain of production. A second entry point would be to build on and replicate the
successful business models of these high value-added local industrial agricultural firms. Thirdly,
reviving the sugar factory in Sud Kivu would require investment in capital, but will give a boost
to Uvira and its sub-market. The World Bank Group and its private investment arm are well
positioned to help pick these low-hanging fruits.
Restoring the infrastructure links that have collapsed would be a fourth area of policy
intervention. As with Goma, close proximity to the paved road network of East Africa and the
functioning eastern section of the Trans-African Highway to Mombassa may allow a faster
recovery than other Congolese towns. Bukavu's proximity to the Lake Tanganyika ports of
Bujumbura and Kalundu-Uvira give the town and the city an additional advantage, with access
on the lake to the railheads of Kigoma (linked to Dar-es-Salaam) and Kalemie (rail link to
Katanga, in need of rehabilitation.)

45
Visit and interviews by the authors. Goma, DRC. 21 October 2009.
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Attacks on Civilians in North and Sud Kivu*
Source: Human Rights Watch (2009).

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37 | P a g e

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Christine Plaza. tude socioconomique dans les zones dintervention dAction Contre la Faim,
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FAO, 2008. Executive Brief: Democratic Republic of Congo Comprehensive Food Security and
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Democratic Republic of Congo, to the United Nations Security Council and other international
leaders. Goma, November 18, 2008
Garrett, N., & Harrison, M. 2009. Trading Conflict for Development: Utilising the Trade in
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Global Witness, 2008. Control of mines by warring parties threatens peace efforts in eastern
Congo.
Global Witness, 2007. Le secteur minier congolais: la croise des chemins. Un briefing de
Global Witness.
Global Witness, 2005. Under-Mining Peace The Explosive Trade in Cassiterite in Eastern
DRC.
Hausmann, R., & Klinger, W., 2008. Growth Diagnostic: A Mindbook.
Hausmann, R., Rodrik, D., & Velasco, A., 2004. Growth Diagnostic. John F. Kennedy School
of Goverment, Harvard University .
Huart, A. and Tombu, C., 2009. Congo Magnifique. Weyrich Editors.
IMF, 2006. Poverty Reduction Strategy Paper.
International Alert. 2007. Peacebuilding in Eastern DRC: Improving EU support for economic
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Ministre du Plan, Rpublique Dmocratique du Congo, 2005. Monographie du la Province du
Sud Kivu.
Musila, C., 2009. Kivu, Bridge Between the Atlantic and Indian Oceans, Institut Franais des
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UNDP, 2009. Province du Sud Kivu: Pauvret et Condition de Vie des Mnages.

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