The Democratic Republic of the Congo (DRC) is a country with huge potential.  It spans two-thirds of the European Union (2.3 million km², which is about the size of Portugal, Spain, Italy, France, Switzerland, Belgium, Luxembourg, the Netherlands, Germany, Denmark, Austria, and Poland combined).  The DRC’s population is widely dispersed, as of the nearly 70 million inhabitants—the most recent estimates from the National Statistical Institute (INS)—just under 40 percent live in urban areas.

With its immense extraordinary agricultural and mineral resources, the DRC has the potential to become one of Africa’s richest countries and one of the continent’s key engines for growth.

Since 2001, the country has been recovering from a series of conflicts that occurred during the 1990s. Since the signing of the Lusaka Peace Accords, which established a transitional government, the country has made significant political progress, paving the way for the peaceful holding of presidential elections in 2006. New institutions such as Parliament, the Senate, and provincial assemblies are now operational.   The second presidential elections, which were held in November 2011, raised concerns about the credibility and transparency of the electoral process in the DRC.

However, the DRC is still a fragile post-conflict country with enormous needs for reconstruction and economic growth, but within the context of a severely constrained fiscal space and weak institutions.  Although the vast majority of the country is at peace, the situation remains precarious, especially in the eastern provinces. Socioeconomic conditions are still strained. Peace building and recovery efforts are being carried out in a context of dire social conditions. The country’s infrastructure has been left badly damaged by the conflicts. Despite progress made through political and economic reforms over the past five years, many communities live hand to mouth with little access to markets to buy or sell goods and poor access to public services. The United Nations estimates that there are some 2.3 million displaced persons and refugees in the country and 323,000 DRC nationals living in refugee camps outside the country. The humanitarian crisis remains a major concern in many of the more unstable parts of the country, where the conflicts have had an impact on the population, causing high rates of sexual violence. Per capita income and human development indicators remain among the lowest in Africa.

Governance in the DRC still raises a number of concerns.  In view of the country’s weak governance indicators, the Government adopted a Governance Contract in 2007 that lays out its objectives in four crosscutting areas (decentralization, public finance management, public administration, and transparency) and three sectors (public enterprises, the mining sector, and the security sector, including the demobilization and reintegration of ex-combatants).  The Government has also introduced a series of measures that have improved the DRC’s ranking in the Doing Business 2011 report.  The Government implemented a series of measures in 2010 in an effort to improve governance and transparency in the extractive industries (forestry, mining, and oil sectors). These measures will help consolidate HIPC Initiative reforms and restore confidence among private investors and development partners. Implementation of these measures is progressing, albeit slowly.

Economic Performance

The return to peace in most of the country in 2003 paved the way for political and economic reforms. From 2003 to 2005, the transitional government implemented rational macroeconomic policies, brought hyperinflation under control, and laid the foundations for strong growth. The deterioration of the macroeconomic framework prior to the elections in late 2005 prevented the completion of the sixth and final review of the program supported by the Poverty Reduction and Growth Facility (PRGF). This problem was promptly corrected in 2006 with the help of an IMF staff-monitored program (SMP). The IMF’s Executive Board approved a new three-year program financed by the Extended Credit Facility (ECF) for the Government Economic Program (PEG 2) on December 11, 2009, which is slated to expire end-June 2012.

The first three reviews of the IMF-backed program were satisfactorily completed in March 2010, February 2011, and April 2011, respectively. The Government successfully implemented its economic program between 2010 and 2011 and observed all the quantitative performance criteria and indicative targets for this program.  After economic growth slowed to 2.8 percent in 2009 owing to the global financial crisis, macroeconomic performance began to improve substantially in 2010.  Real GDP growth stayed at around 7 percent in 2010, driven mainly by the extractive industries’ performance, which was boosted by increases in commodity prices and by public investments.  This growth is projected to remain robust in 2011 at around 6-7 percent, despite a challenging global economic environment. Inflation fell from 53.4 percent in 2009 to less than 10 percent in 2010, and then climbed to 15.4 percent in 2011 following a restrictive monetary policy prompted by the absence of bank financing of the fiscal policy.  The implementation of prudent fiscal and monetary policies alleviated the pressure on demand for foreign currency and kept the national currency relatively stable.  In addition, gross international reserves remained at around US$1.3 billion at the end of 2010 and 2011, accounting for approximately eight weeks of import cover, which came from financial flows and capital inflows, especially those related to the HIPC Initiative and the MDRI, as well as IMF disbursements under the ECF.  However, the deadline for completion of the fourth and fifth reviews of the ECF program was extended, owing to the delayed implementation of governance and transparency measures in the extractive industries.

The DRC’s medium-term economic outlook still looks good even though its political and security situation remains fragile. In the medium term, the economy is expected to grow steadily at around 7 percent per year (6.6 percent in 2012) following increased investment and growth in the extractive industries and the contribution of the civil engineering and service sectors. Continued restrictive monetary policy and fiscal discipline are crucial to staying below the 10 percent inflation target, despite the rise in world food and energy prices since the second half of 2010.  A medium-term reform strategy to boost growth will require the involvement of both traditional and non-traditional partners. The World Bank’s estimates confirm that the Government’s strategy to support large-scale infrastructure investments could significantly enhance growth, provided that high-return projects are prioritized. GDP growth could quicken if these investments are combined with reforms to improve the business environment, especially by improving governance and transparency in the extractive industries (forestry, mining, and oil sectors).

The DRC’s debt situation has been much improved by the HIPC Initiative and the MDRI, but the risk of slipping back into debt remains high. In June and July 2010 respectively, the IMF and World Bank Executive Boards approved US$12.3 billion in external debt relief for the DRC under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). The joint Bank-Fund debt sustainability analysis for the DRC underscores the critical need to continue structural reforms aimed at diversifying the economy and limiting external borrowing to highly concessional sources.

The Bank reengaged with the DRC in 2001, after nearly a decade of suspended Bank activities due to widespread corruption, growing insecurity, and political decay. The Bank provided assistance under two transitional support strategies, one in 2001 and the other in 2004. The Kinshasa office reopened in late 2002 and now has some 60 staff, including a Country Director and field-based task team leaders. From 2001 to 2010, 30 projects were approved for a total of US$3.09 billion. Hands-on technical assistance was provided to launch and implement the government’s economic program. 

World Bank assistance to the DRC is governed by the Country Assistance Strategy (CAS) for the 2008 to 2011 financial years. This CAS defines the business plan for the World Bank’s support to the DRC and is part of the Country Assistance Framework (CAF), where 17 donors (the World Bank Group, the European Commission, the International Monetary Fund, the African Development Bank, the United Nations system, and key bilaterals in the shape of Belgium, Canada, France, Germany, Japan, China, the Netherlands, Italy, Spain, Sweden, the United Kingdom, and the United States) have developed a strategic approach for economic assistance to the DRC, and the Poverty Reduction Strategy Paper (PRSP). This paper lays down a coordinated strategy for the Bank Group’s three key bodies: the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). It is crucial to have a well-knit, coordinated strategy comprising complementary actions by these three bodies in a country with strong potential for private sector development, where private investment is critical to supplement the relatively meager flows of official development assistance (ODA).

The World Bank Group’s assistance strategy, the CAS, was designed following extensive consultations with government, civil society, and private sector stakeholders. The CAS draws on World Bank experience in post-conflict and transition countries to propose an agenda that includes (i) effective management of the existing World Bank Group portfolio, (ii) analytical work, (iii) IDA financing, (iv) scaling up of IFC activities, and (v) expansion of MIGA activities. The main anticipated outcomes (adherence to good governance principles and focus on poverty reduction) are expected to improve governance, the management of natural resources, the supply of public goods and services, the health and education indicators, and rural incomes.

In July 2011, the Bank’s portfolio in the Democratic Republic of the Congo covered 18 projects in progress for a total commitment of US$2.9 billion.

The DRC represents one of the World Bank’s largest commitments in Africa (US$38,676.4 million), at approximately 8 percent of the total. The current portfolio consists of 18 projects, including three emergency projects, two regional projects, and 13 sector projects, reflecting the World Bank and DRC government’s resolve to make a gradual transition from the emergency phase, starting with the resumption of cooperation in 2001, to the sustainable development phase. Four projects (one new project and three additional financing plans for existing projects) were approved in 2011 for a total of US$410 million. Most of the projects are related to peace building, governance, infrastructure rehabilitation, public enterprise reform, and providing basic health care, education, and social protection services. The portfolio focuses on three main sectors: 69 percent on sustainable development (infrastructure, water, energy, agriculture, and forests/environment), 9 percent on governance and the private sector, and 23 percent on human development (education, health, and welfare services).

The projects in progress are underpinned by a portfolio of trust funds that finance analyses of governance (including the new Governance Partnership Facility), health care strategies, education, sexual violence, and peace building. In keeping with the Kinshasa Agenda and with a view to leveraging partner resources and cutting transaction costs for the government, the donors have agreed on a multi-donor trust fund as the instrument to be used in the event of coordinated multi-donor action. Accordingly, we increasingly use trust funds (a) in areas of multi-donor intervention for the development of strategies, and (b) in the implementation of sector programs such as in the road sector (with DFID, ongoing), education (under discussion with DFID and Belgium), and capacity building (being prepared with DFID, the AfDB, and other donors).

Preparation of the new country strategy is underway.  Consultations with all the actors are expected to the held after the government takes office, with the aim of identifying priority sectors and programs.

 

Pillar 1: Competitiveness and Employment

The Emergency Multisector Rehabilitation and Reconstruction Project (EMRRP). The project has led to the rehabilitation of the Ndjili water treatment plant’s two existing modules and to the construction of a new treatment plant. These facilities have helped double Ndjili’s water production capacity, which now stands at roughly 330,000 cubic meters of drinking water per day for the three million people living in the areas south of Kinshasa.

DRC – The Ibi Bateke carbon sink project. The World Bank’s BioCarbon Fund is helping a private Congolese enterprise to rehabilitate degraded land on the Bateke plateau, using reforestation to produce a sustainable flow of charcoal for the city of Kinshasa. Social services include the creation of local jobs and the provision of health care and education. The project’s environmental focus is on reducing pressure on the indigenous forests.

The High Priority Roads Reopening and Maintenance (Pro-Routes) Project.  The national road rehabilitation work financed by the World Bank’s Pro-Routes Project has opened up certain Orientale Province areas, which had long been cut off from the main town of Kisangani Province. This work has had socioeconomic impacts on a number of levels:   

• Increase in traffic. The reopening of the Kisangani-Banalia road has led to a sharp increase in the movement of both individuals and merchandise. It now takes two hours to drive from Kisangani to Banalia. Before the road was reopened, the trip took roughly five hours by bicycle.
•  Increase in agricultural production. Farmers have increased their production in line with the road’s new potential for selling goods. With unsold merchandise a thing of the past, they are spurred to produce more.
• Reduction in the price of certain foodstuffs. The prices of some products have fallen. For example, a basket of manioc roots, which used to fetch CDF 7,500 before the road was reopened, now sells for CDF 2,500. In Banalia, beer has been on sale for CDF 1,000 per bottle since December, compared to CDF 2,500 a few months before. Rice, maize, and bananas – to name a few – have also plunged in price following the work to reopen the Kisangani-Banalia road.

Pillar 2: Vulnerability and Resilience

The Health Sector Rehabilitation Support Project (HSRSP).  The HSRSP is gradually improving access to many different types of quality health care services.  As a result of this project, which is being executed in four of the country’s provinces, materials, drugs, and an allowance to health care staff are being provided, thus reducing the cost of treatment for patients. Since 2008, over 1.3 million people in 14 targeted health zones have had access to a range of high-quality basic health care services and have actually used these services. This project has also increased vaccination coverage, reduced the cost of health care for households, and made considerable progress with access to malarial control inputs.

 The Emergency Social Action Project (ESAP).  For the past five years, the World Bank’s ESAP has been providing financial support to projects that have a real social impact on people’s lives. Communities select their own basic project and work on the project components, thus taking charge of their own development. A total of 585 projects have been executed in sectors as varied as education, health, and infrastructure. For example, the rehabilitation of 357 schools has boosted the school enrollment rate by 34 percent, the construction of 43 markets has benefitted 13,980 vendors, and the rehabilitation of 74 health care centers has led to a 92 percent increase in consultations.

Pillar 3: Governance and Capacity-Building in the Public Sector

The governance matrix adopted in 2010 serves as the main framework for dialogue with the authorities in the area of governance. Significant progress has been made in recent months with the publication of mining and petroleum contracts.  All petroleum contracts and close to 80 percent of contracts have been published.  While the new institutions resulting from the procurement reform process have been established, they need to be strengthened.  In addition, the adoption by Parliament of the 1958 New York Convention is one the key issues still pending.

• Increase in traffic. The reopening of the Kisangani-Banalia road has caused a sharp rise in the number of people traveling, with and without merchandise. It now takes two hours to drive from Kisangani to Banalia. Before the road was reopened, the journey took five hours by bicycle.
• Increase in agricultural production. Farmers have increased their production in line with the road’s new potential for selling goods. With unsold merchandise a thing of the past, they are spurred to produce more.
• Reduction in the price of certain foodstuffs. Some products have come down in price. For example, a basket of manioc roots, which used to fetch CDF 7,500 before the road was reopened, now sells for CDF 2,500. In Banalia, beer has been on sale for CDF 1,000 per bottle since December instead of CDF 2,500 a few months before. Rice, maize and bananas – to name but a few – have also plunged in price following the work to reopen the Kisangani-Banalia road.

The Health Sector Rehabilitation Support Project (HSRSP).  The HSRSP is gradually improving access to many different types of quality health care services. This project works in four of the country’s provinces, distributing materials, drugs, and an allowance to health care staff, which reduces the cost of treatment for patients. Since 2008, over 1.3 million people in 14 targeted health zones have had access to a range of high-quality basic health care services and have used these services. This project has also increased vaccination coverage, reduced the cost of health care for households, and made considerable progress with access to malarial control inputs.

The Emergency Social Action Project (ESAP).  For the past five years, the World Bank’s ESAP has been providing financial support to projects that have a real social impact on people’s lives. Communities select their own basic project and work on the project components, thus taking their own development in hand. A total of 585 projects have been conducted in sectors ranging from education through health to infrastructures. For example, the rehabilitation of 357 schools has boosted the school enrollment rate by 34 percent, the construction of 43 markets has reached out to 13,980 trades people, and the rehabilitation of 74 health care centers has prompted a 92 percent increase in consultations.

The Bank has been working on rallying donors to re-engage in the DRC since it resumed operations in 2001. In cooperation with the government, the Bank has also coordinated the organization of six consultative groups.

The latest group was formed in November 2007. This work has paid off. Since 2001, foreign economic assistance to the DRC has been on the rise with annual disbursements of US$800 million on average (US$1 billion from 2004 to 2009). However, this aid is fragmented and not enough to meet the challenges of the DRC (approximately US$15 per capita).

IDA has largely stepped up its engagement with other development partners since the 2007 definition of the 2007-2010 multi-donor Country Assistance Framework (CAF) on which the Country Assistance Strategy is based. The Bank will continue to play a leading role in improving donor coordination and alignment and in the focus groups under its co-leadership (governance, industry, and mining). In keeping with the Kinshasa Agenda, which calls for a better division of work among donors and a better use of the harmonized implementation mechanisms (where national systems are not used), the donors are revising their country assistance to concentrate on fewer sectors.

The Bank is refocusing its own program accordingly and will pursue its strategic partnerships with other donors in these focus areas. The Bank has taken the lead in developing joint project implementation mechanisms to reduce the cost of doing business and avoid overburdening already weak government capacities. An example is the joint implementation unit for energy sector programs funded by the Bank, the AfDB, and the European Investment Bank (EIB). Similar arrangements are planned for other sectors to optimize donor coordination. The Bank, in coordination with other donors, will also continue to switch from stand-alone project units to sector project units integrated into the line ministries concerned.