Second Trade Policy Review of the Democratic Republic of the Congo: Minutes of the meeting
The second Trade Policy Review of the Democratic Republic of the Congo (DRC) was held on 25 and 27 October 2016. This meeting was a good opportunity for Members to discuss in greater detail issues of interest to them and to the DRC, and of importance to the multilateral trading system.
At the previous TPR meeting in 2010, Members had commended the DRC on its macroeconomic and structural reforms, including trade reforms. These efforts had not only contributed to the country’s overall positive economic performance and its recovery from socio-political crises, but had also helped reduce its debt, through the Heavily Indebted Poor Countries initiative. However, at that time, Members had also noted a number of factors which had been undermining the competitiveness of the economy and its growth prospects. These included poor infrastructure; inaccessible and expensive financial services; inefficient state-owned enterprises; a large number of duties and disproportionate fees charged by several non-coordinated institutions; and poor governance. Members had encouraged the DRC to pursue reforms which could strengthen the fundamentals of its economy, and create a business environment conducive to foreign direct investment, so that the country could exploit its potentials, diversify its economy, and alleviate poverty.
Members were pleased to know that, since its last TPR, the DRC had recorded strong macroeconomic performance: it had consolidated its fiscal position, had achieved a small surplus, and had brought inflation down to a record low level of around 1%. GDP growth, mainly driven by copper production and the emerging services sector, had reached around 8% per year. However, economic growth had been non-inclusive, and poverty remained pervasive. The country’s potentials, in terms of land and human resources, were still largely untapped, and its competitiveness remained hampered by structural bottlenecks such as a challenging business climate, electricity shortages and corruption. The financial position of the Central Bank of Congo was also fragile.
Taking the opportunity of this TPR, Members asked many questions about the DRC’s long term economic and development strategies, including how it planned to improve the business environment for traders and investors, and how it would diversify its economic activities.
It was encouraging to know that the TPRM had served as a catalyst in the DRC’s reform process. Following the TPR in 2010 and the follow-up workshop in Kinshasa a year later, the DRC had implemented various reforms to address concerns raised by Members. One example was the structural reform aimed at reducing state intervention in the economy, which had resulted in the liquidation or privatization of several state-owned enterprises. The country had also taken steps to modernize obsolete trade-related legislation, such as that governing public procurement. Meanwhile, it had adopted a new customs code, introduced a VAT system, and simplified the tax system.
All this was going in the right direction, but in some areas, significant progress was yet to be seen. It was clear from Members’ advance questions that they still had concerns about the country’s customs valuation and clearance procedures, its tax system, its SPS and technical regulations, etc., and they would appreciate further information on the planned reforms, including the trade facilitation programme.
As in the last TPR, Members noted DRC’s overlapping membership in different trade agreements and the possibility of conflicting commitments. It would be useful for the delegation of the DRC to share with Members how this was being managed.
Statement by Ms Eugénie Salebongo Basoy (Secretary General for Trade)
The Democratic Republic of Congo is honoured to belong to an important institution such as the World Trade Organization. In accordance with the rules and principles governing the WTO, my country has established guidelines on economic and trade policy, including contained liberalization of the domestic market, gradual opening up of the different economic sectors, freedom of enterprise, and promotion of a favourable economic environment.
In order to transform these policy choices into specific action, my country has firmly undertaken reforms through the implementation of a series of measures and initiatives that have benefited almost all sectors, with the objective of improving the business climate, increasing the effectiveness of its economic and trade policies as a driving force that will enable the DRC to become an emerging economy by 2030.
The recent economic reforms were promoted and driven by the national authorities, in parallel with measures at the political level which have led to democratic progress, stability and the consolidation of social peace.
In practice, the economic reforms sometimes received support from international partners, and were based on the recommendations of the first trade policy review, as well as on other evaluation mechanisms such as the “Doing Business” index.
I will therefore make a point of sharing with Members the results that bear witness to the progress made in terms of the strengthening of the macroeconomic situation, the review of sectoral policies, and the status of trade negotiations and regional processes in which my country is participating. I will then turn to the economic outlook for the DRC.
As a result of sustained commitment and a package of measures, the DRC’s economic situation has significantly improved since its first trade policy review in 2010. For example, in the period 2010-2016, gross domestic product (GDP), expressed in real terms, made a strong recovery, rising from US$15.67 billion to US$22.78 billion, which represents a gross increase of 45.4%, while annual GDP growth was around 7.6%, with a peak of 9.5% in 2014. These levels are higher than the average in sub Saharan Africa.
The strengthening of the domestic economy can also be seen in the control over inflation. The Government succeeded in lowering the inflation rate to below 2% as from 2013, more specifically to 1.16% in 2013, 1.21% in 2014 and 1.81% in 2015, which represents a significant change compared with 2010 when the inflation rate was 23.5%. This was a major challenge for the Government, which was under great pressure to avoid the disastrous consequences of uncontrolled inflation on the national economic community, particularly on consumers and the general population.
Regarding debt, the DRC reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative at the end of June 2010. The country therefore benefited from a significant reduction of its debts, which amounted to around US$12.5 billion, thus lowering the external debt to GDP ratio from 67% in 2009 to 22.5% at end December 2011. In addition to the HIPC Initiative, other reductions were granted, particularly by multilateral and Paris Club creditors, enabling the country to move from a high to a moderate debt risk.
Furthermore, our country’s foreign trade was able to recover after the major turmoil of 2009 caused by both the financial crisis and the fall in the country’s raw material export prices. Both exports and imports experienced upward trends, and the total value of trade in goods between the DRC and the rest of the world has continued to increase, with a trade surplus during the period under review.
Regarding exchange rate policy, the DRC has adopted new exchange regulations, which were published in March 2014, replacing those issued in 2003 with the aim of better regulating foreign exchange transactions and adapting to changes in the economic and national, regional and international financial environment.
Generally speaking, the economic growth referred to above was mainly driven by the primary sector, with the mining sector playing a prominent role. Copper and gold production in particular recorded the highest growth for the period under review, with an increase from 497,000 tonnes to over 1 million tonnes for copper, and from 1.78 tonnes to around 23 tonnes for gold.
Nevertheless, the other production sectors did not lag behind. The agricultural, manufacturing, energy and services sectors also saw growth compared with six years ago. For example, the volume of communications in the telephony subsector experienced a twofold increase.
All these results were achieved thanks the measures taken by the Government to improve the economic environment, and by the vigorous reforms undertaken in the different sectors.
The Government’s actions have resulted in, among other things, the simplification of procedures, the elimination of certain documents, the streamlining and even the removal of some taxes and levies, the adoption of a nomenclature of taxes to be collected at central and provincial levels, and the limitation of the number of entities present at the borders.
These measures also served to lay the foundations for the establishment of an integrated single window for foreign trade, which is now operational, although it has not yet been fully rolled out.
Moreover, during this period the DRC launched a process to strengthen the operational capacities of its control agencies, mainly the Congolese Control Office (OCC) and the Border Health Services, with the objective of protecting consumers and facilitating cross border trade.
Legal and judicial security for businesses was also strengthened through the establishment of new commercial courts, the accession of the DRC to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), and the effective implementation of the Treaty on the Harmonization of Business Law in Africa (OHADA Treaty), to which our country became party in 2010.
The Government has also addressed the matter of business startup formalities, and on 1 November 2012, established the Single Window for Business Startups in order to centralize these formalities. The results are now visible in the form of simplified procedures, shorter deadlines and lower costs.
In the financial sector, the liberalization of insurance in March 2015 is regarded as the key reform of the review period, given that, until then, insurance was a State monopoly held by the National Insurance Company (SONAS).
Furthermore, the Government’s actions in the financial sector have led to the streamlining of banking institutions, now reduced to 18, compared with several dozen a few years ago. Nevertheless, banking remains open to competition and investment. The focus is on increasing the viability of banking institutions and use of the country’s banking services, an objective that is closer to being achieved thanks to the rapid development of the mobile banking sub branch of the telecommunications sector.
The momentum of liberalization during the period 2010 2016 has also had an impact on strategic sectors such as electricity, water and hydrocarbons, which have now been opened up through the adoption of new sectoral laws, and have thus been added to the list of liberalized sectors that already included telecommunications, tourism, banking, construction and industry.
Government procurement has also been modernized through the entry into force of a new Government Procurement Code, which is based on international standards and confers autonomy on management, supervisory and regulatory bodies. The Directorate General for the Control of Government Procurement (DGCMP) was established as a result.
In order to sustain this momentum in the long term, the country has also adopted several policy documents and sectoral strategies. The Trade Strategy Paper, which was published in April 2016, aims to make the DRC’s economy more competitive at national, regional and international level, and to improve the country’s integration in international trade. Ultimately, this means creating the basic conditions needed to ensure the availability and quality of products on the domestic market, promoting the development of exports, and boosting economic growth and development.
Several priority actions were identified, which include strengthening the institutional framework for trade and sectoral policies; enhancing supply capacity and competitiveness; increasing market access; improving the functioning of the domestic market; and, of course, pursuing efforts to improve the business and investment climate.
The country also adopted the Strategic Plan for the Reform of Government Finances 2010-2015, with a view to strengthening the management of State resources. This Plan has resulted in several measures to increase the efficiency of the State services responsible for collecting revenue, programming, and implementing expenditure.
Value added tax (VAT) was introduced in 2012, and a nomenclature of taxes to be levied by central government and the provinces was adopted. The new Customs Code and Excise Code entered into force in 2011 and 2012, respectively. The Customs Code establishes rules and guidelines in line with the revised Kyoto Convention and takes into account, in many of its provisions, the customs measures provided for in the Trade Facilitation Agreement.
Tariffs have not varied, and the 0%, 5%, 10% and 20% bands remain in force. However, it should be noted that, as required under the COMESA Treaty, the DRC adopted a law in December 2015 to bring its tariffs into line with those of COMESA, with a view implementing this subregional organization’s free trade area.
The public finance services’ technical and operational capacities have been strengthened, particularly through the adoption of computerized management systems for the services responsible for customs, taxes, authorization of expenditure, as well as payroll services.
The reform of State ownership continued during the period under review, leading to the withdrawal of the State from some economic sectors, the restructuring of enterprises remaining in the hands of the State and the improvement of their management methods, and the establishment of public private partnerships.
With regard to agriculture, livestock farming, fishing and rural development, the Government’s policy has aimed to revitalize this key sector in order to ensure food security, improve production, diversify exports, reduce poverty and precariousness in rural areas, and increase the contribution of agriculture to economic growth, in keeping with the country’s rich potential.
In this regard, the Government’s first initiatives included the adoption of an agricultural law in 2011 and the implementation of incentives such as exemptions for imports of agricultural inputs, equipment and new materials.
In May 2013, the DRC adopted the National Agricultural Investment Plan (PNIA 2013-2020), the main aim of which is to gradually establish some 20 agribusiness parks throughout the national territory. This Plan is now the national framework for the planning of domestic and external resources in the agricultural and other related sectors. Its objective is to promote sustained growth of 6% in the sector. The PNIA takes into account not only national agricultural policy objectives, but also other aspects such as the development of agricultural and agro industrial areas, research, training, governance and climate change adaptation.
The financing arrangements for the PNIA involve the allocation of a substantial part of the national budget for agriculture, in addition to the mobilization of private resources. These arrangements thus offer opportunities for national and foreign direct investment, and for the development of public private partnerships. In 2014, such a partnership enabled operations to begin at the first agro industrial park, that of Bukanga Lonzo.
Regarding the industrial sector, the Government intends to establish economic and industrial growth poles on the basis of comparative and competitive advantages in the different provinces. These objectives are also in line with those of the DRC’s new industrial policy set out in the Industrial Policy and Strategies Paper (DPSI), which was adopted in 2011 and focuses on the promotion of four priority areas, namely: agro industry with an emphasis on agri food; mining and metallurgy; building materials; and packaging. One of the principal means of achieving these objectives is the implementation of a special economic zones (ZES) regime.
Another central element is the promotion of small and medium sized enterprises (SMEs), for which accompanying measures have been implemented, including the creation of incubation centres, tax relief under the Investment Code, support for the identification of opportunities, and the enactment of a leasing law that provides additional means of financing for SMEs/SMIs.
The policy option with regard to transport services remains the opening up of traffic in the various subsectors and the promotion of private investment with a view to expanding the delivery of services. In order to facilitate the movement of goods and individuals, which is a major challenge because of the size of the country, the Government has rehabilitated road, rail and air transport infrastructure. In 2015, it also launched a new national airline, Congo Airways, which, for the moment, only operates domestic flights.
I would like to end this review of sectoral policies with a few encouraging words about tourism in the DRC. The sector is fully open and our country has a vast, rich and diverse potential for tourism, owing to its biodiversity, exceptional parks and reserves, terrain, and culture, with a thousand different sites to visit.
Today, this sector, which has been seriously affected by the crises in our country, is undoubtedly one of the DRC’s most promising areas for business investment and development in the years to come. The DRC therefore welcomes you as both tourists and investors in tourism.
I would now like to turn to the trade negotiations and regional integration processes in which our country is participating. It should be noted that the DRC is involved in the negotiations for the Economic Partnership Agreement (EPA) between the European Union and Central Africa.
The discussions with the European Union have come to a standstill, but Central Africa, on its part, has completed its preparations over the course of several meetings of the Regional Ministerial Committee.
The DRC is also taking part in the work of the COMESA-EAC-SADC Tripartite to establish a free trade area comprising the States from these three regional economic communities, and therefore is following with genuine interest the preparations for the creation of a continental free trade area within the African Union.
In the same context, the DRC will shortly become a participant in the implementation of the COMESA free trade area, as I mentioned earlier. The DRC is also involved in the process of establishing the Economic Community of Central African States (ECCAS) free trade area, which was initiated in 2004.
Furthermore, our country is actively participating in the negotiations on services liberalization in the SADC and COMESA, which aim to gradually liberalize the identified sectors in order to create a more integrated, more competitive and more attractive regional services market.
Our country is preparing to implement the Agreement on Trade Facilitation. In this regard, we have launched an information campaign for national stakeholders and carried out the exercise of categorizing the measures under the Agreement. We are making every effort with a view to their notification, the creation of a national trade facilitation committee, and the ratification of the Agreement, and these processes have already been initiated at national level.
However, it should be noted that, in spite of the significant progress recorded, our economy still faces challenges. It remains highly exposed to the external shocks that often affect economic indicators, as has been the case in 2016.
This state of affairs requires us to ensure the economic transformation of our country by becoming more involved in global value chains, reducing our dependency on mining commodities, speeding up the industrialization of the country, strengthening export performance, bolstering the domestic market, and increasing the contribution of the services sector to the creation of wealth. The underlying aim is to reduce poverty and precariousness among the population, create jobs and boost economic and social development as a whole.
In order to address these challenges, the Government has undertaken to implement the National Development Strategy as a new framework to guide government action over the period 2017-2021.
The Government thus intends to pursue and deepen its reforms. It will continue to pay serious attention to promoting public and private investment, will encourage public private partnerships and will step up its action to improve the business climate. It has also planned to adopt a specific law on public private partnerships and a law on competition and consumer protection.
Furthermore, the law on intellectual property will be amended, with a view to expanding its scope and strengthening protection in this area, and to fostering its economic role in industrial promotion and entrepreneurship. The Government is also planning to adopt a law on standardization and metrology in order to give the country a framework for the promotion of production activities, while ensuring greater protection of the population’s right to health and security.
Regarding SMEs and traditional crafts, the Government has approved a national SME strategy and is preparing to adopt a Code of Traditional Crafts and Artisanal Activities and a law on entrepreneurship in the DRC, with the aim of making SMEs one of the main drivers of the country’s economy. This will require enhanced resources in terms of support and finance for local business people, especially young people and women.
Concerning forestry and the environment, the Government intends to implement the National Programme on the Environment, Forestry, Water Resources and Biodiversity (PNEFEB), which is a single strategic framework for action incorporating the commitments undertaken by the DRC Government to fight climate change and promote sustainable development. For example, the Government plans to reduce the use of firewood by 25-30% and lower its greenhouse gas emissions by 17% by 2030.
It also intends to prepare and implement the Strategic Mining Development Plan (2016-2021), which aims to improve the business climate and find a lasting solution to the difficulties in the sector, as well as enhance its potential for our country’s economic development.
As regards the postal and new ICTs sector, the national strategy will seek to optimize its contribution to growth, strengthen its role in the interconnection and integration of production factors at domestic economic level, and capitalize on the opportunities available, particularly in terms of employment.
As can be observed, technical and financial assistance from partners and donors would be welcome, in order to speed up the implementation of these plans, extend their scope and ensure maximum success.