Thursday, Oct 19, 2017
Finance | Energy | Infrastructure | Agriculture | Government | Africa | Democratic Republic of Congo

DRC's Business Environment Transformation

Successful reforms instill new belief in DRC economy


2 years ago

Augustin Matata Ponyo, Prime Minister of the Democratic Republic of Congo
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Augustin Matata Ponyo

Prime Minister of the Democratic Republic of Congo

High growth in the Democratic Republic of Congo (DRC) over the past decade has been largely driven by the mining industry, and analysts believe it will continue to be one of sub-Saharan Africa’s fastest growing economies over the next decade, with growth rates well above 6%. Growth this year is forecasted to be in the region of 8.4%, down from an estimated 9.2% in 2014 as a result of weakened commodity prices. In this interview with PM Communications, Prime Minister Augustin Matata Ponyo discusses how DRC is working to diversify the economy away from the extractive sector by investing in energy and agro-industry in order to create sustainable development. He also discusses how widespread reform has led to a significant improvement in the business climate and increased investor confidence, the $12 billion Inga dam hydroelectric project, his leading role in the fight against crime and corruption, and opportunities for foreign investors through public-private partnerships.

 

According to the latest IMF forecasts, in the short term DRC will be one of the fastest growing economies in sub-Saharan Africa. Forecasts envisaged double-digit growth this year, but a drop in the price of commodities has forced a revision in the rate of growth to 8.4%, which is still impressive. What are the factors that enabled such growth in an unstable international context?

First, you should know that we have committed to important fiscal reforms, which helped to redress the financial situation of the state and stabilize the macroeconomic framework. We have an exchange rate that has been stable for almost six years. We have an inflation rate that has remained close to 1% for three years, and this year, moreover, the inflation rate will be 0.8%. This macroeconomic stability constitutes the foundation on which we build an economy; and I must say that we have an exceptionally stable macroeconomic framework.

Today the currencies of several countries falter due to a drop in the price of commodities, but we have made significant reforms, both tax-wise and sector-based, particularly in the sectors of mining, agriculture, hydrocarbons, forestry and administration. All of these reforms have given a boost to the Congolese economy, but also increased confidence and credibility in the economy; thus investment continues. And these investments, both public and private, help maintain a high growth rate too.

The fight against fraud and corruption has also played an important role. During my tenure as Minister of Finance between 2010 and 2012, and since I was made Prime Minister in April 2012, the government has invested a lot in the fight against fraud, against corruption, and in favor of better governance, which has led to an increase in public revenues. And we have invested heavily in sectors with growth potential, such as education, health, road infrastructure and agriculture. This has allowed not only a stable macroeconomic framework, but also strong growth, because sustainable and durable growth is the result of strong and sometimes risky reforms.

 

A lot has been accomplished in terms of good governance, which has led to an improved business climate. What still remains to be done in this regard?

Much remains to be done. The business climate improvement work is continuous and never-ending. And that’s why the DRC, in the World Bank’s Doing Business 2014 index, was ranked amongst the top 10 countries in the world in terms of economic reforms.

We are working on the reforms. Reforms are the secret to success in every country, in every economy. It is true that reforms are hard. But if we have high growth rates at present, it is because we have pushed through these reforms. These good results have been achieved thanks to the determination of the government of the DRC under the leadership of the president. It is important to note that these results are the best yet since the country’s ascension to independence.

We have the same resources, we have the same country, we have the same people, but what have changed are the reforms. People today believe in the Congolese economy; and they will continue to believe in it. People continue to invest in this country, they have confidence in the institutions and they have confidence in the leaders.

 

Part of the government’s strategy is indeed investment in large infrastructure projects. What are the main projects you would like to highlight and how can these big capital-intensive projects benefit from a public-private partnership (PPP) scheme?

In the energy sector, it is important to mention the Inga dam project, which will cost $12 billion. It is a world-class project, and I must stress that we have not had a project in this country that has cost this much in a few years; not even in the mining sector where we had up to $3 billion in investment. This is a project that has the potential to produce 4,800 megawatts (MW), and this is only the first phase, as the DRC has the third biggest hydraulic potential in the world after China and Russia. In the future we will have Inga IV, Inga V, VI, VII and VIII, all producing up to 48,000 MW.

It is a continental-scale project because the energy will not only be for the DRC. The republic of South Africa has already asked for 2,500 kilowatts (KW) from the production of Inga III. Other African countries would also like to get energy from the Inga dam, because it is energy that is produced at the lowest costs in the world.

Inga III is without a doubt the most likely project to shape Africa during the 21st century. It is one of DRC’s strategic pillars toward emerging status, as the country needs the energy to liberate its economy in order to consistently reduce poverty. Inga is an extraordinarily profitable and cost-effective site. And it is a project in which the PPP scheme can work.

The DRC is a country that has great hydroelectric potential, aside from the Inga project, there are other sites that exist throughout the country, where the private sector, in partnership with the DRC, can invest in the production of hydropower in a profitable manner.

The agricultural sector is also a promising sector for growth with great business opportunities. We have ourselves invested in the agro industrial program; it is impressive. With 80 million hectares of fertile and arable land but only 10% currently being used for production you can imagine the tremendous potential that exists in this country. The agro industrial park of Bukangalonzo is the first of its kind in production over an area of 80,000 hectares in partnership with the private sector.

I should also mention our road infrastructure. The DRC is a country of 2.3 million square kilometers; it is 80 times the size of Belgium. It is a subcontinent itself. So roads are an area for investment, also railways, ports, gas, and hydrocarbons. There are plenty of opportunities for PPPs. We want to work together with the private sector to develop this country.



The budget decline of $700 million in 2016 compared to 2015 reflects the pressure that the fall in commodity prices has had on many commodity-exporting countries. To make the economy more resilient to external shocks, the government will set aside a large part of its resources for the development of new productive sectors, thus moving towards a more diversified and competitive economy. What were your priorities to cope with the fall in prices and what is the progress made in your diversification strategy?

It is true that the economic growth of the DRC has been led by the mining sector over the last few years. However bearing in mind this danger the government has put in place a plan of action since 2012 that focuses on health and education as a mean to increase the living condition of the population but also to diversify the national economy.

The share of the extractive sector in the GDP has been diminishing, thanks to the strategy we are implementing to diversify the economy and transition to other promising growth sectors such as agriculture, public works or industry, thus contributing to making the economy more resilient against external tremors.

I have to say in all sincerity that currently the strength of the Congolese economy is not accidental. It is because the diversification we have implemented now allows the DRC to resist external shocks. And this is an extremely important element.

When you analyze the contribution made by different sectors of the economy to GDP, you will see that the extractive sector decreases in favor of other areas less affected by external shocks, and this allows us to have a safety net.

 

For the country to continue this trend of sustained growth and raise its competitiveness in the international arena, diversification plays a fundamental role. But it is also important to gain positions in the value chain. How will the 2016 budget help create a major value-added economy?

Of course we are working on it. Agriculture, in which the government has invested tens of millions of dollars, is not subsistence farming; it is an agro-industry. When we talk about agribusiness, we talk about processing and the value chain. The agro park of Bukangalonzo produces corn, which is then converted locally into several byproducts. The site has been connected to electric energy over a distance of nearly 50 kilometers where transformers will be installed, this represents an investment of nearly $30 million. We will be able to produce chicken, meat, fish, milk and cheese as finished products.

Factories and industries will be established on the agro-industrial parks we are developing. We produce chicken meat; we have plans to breed animals and produce milk and cheese. There are several value chains.

We are currently installing a plant for the production of chemical fertilizers in Muanda. This is the first plant of fertilizer production in this country for several decades. And it will be one of the few factories in the sub-region. It will also allow us to produce fertilizers compatible with the soil of our country, and this will increase productivity. All this is studied in an organized way in order to increase the value chains.

 

How would you define the collaboration between the government, the private sector and the academic world to meet the current market requirements?

The government’s role is to facilitate the business environment; and the role of the private sector is to deploy itself because it is the sector that creates wealth. The strength of the modern economies lies in the strength of its private sector; it cannot be forgotten. And that is what this government is doing under the leadership of President Kabila. When you are told that the DRC was ranked amongst the top 10 most reform-oriented countries in the world, it is precisely due to the improvement in our business climate, even though there is still work to do. The government is working to improve the legal framework like a new mining code, a hydrocarbons law, an agriculture law, an electricity law, a new insurance code, etc. All of these reforms have been carried out to improve the business climate and enable the private sector to do business. By developing the private sector we will also increase the state revenues through the tax system thus increasing the national wealth. That is the price of developing the economy. In doing business, we generate profits, and we have the possibility of taxing it; and that produces wealth for the Congolese State. The private sector must work to develop the economy; it is crucial.

The university sector is the sector of research, the sector for improvement and innovation. If you want to have the best agricultural productivity, it is vital that agricultural research can be done. And so this collaboration between government, private and academic sectors is a magic triangle.

The sector of research and development constitutes one of the main engines of any country on the way to emerging status. In Europe, the strongest countries are the ones that invest heavily in research and development. Technological progress depends upon research and development, and therefore education and the university are vital to this.

 

The DRC has become an increasingly interconnected nation in the global economy. Thanks to investment and trade that continue on an upward trend, the country has become a key element for regional growth and integration. Let’s talk about international collaboration; how would you define the relationship with your Western partners and in what fields should you seek closer ties?

Areas of collaboration are varied, but it is important to know which are the areas of interest. In the energy sector for example we have a large deficit which is impacting the mining industry in Katanga. And we believe that in this area we can further collaborate with external partners to improve the energy production industry, through the Inga III and other hydropower projects across the country.

The second area is represented by the road infrastructure and telecommunications infrastructure. With the developments we have today, we need more roads, ports and airports. The objective is to improve national expertise through further international cooperation.

Agriculture also offers enormous opportunities. We are currently creating agro-industrial parks; we need to improve technology and productivity. A hectare could produce 10 times more than what it produces today if you have improved seeds, fertilizers and appropriate monitoring. Development is the human capacity to master nature. And that is what we are currently working on: having sustainable development over a long period of time. 



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