Democratic Republic of Congo : Growth with Governance in the Mining Sector
This study examines the mining sector's potential to contribute to economic growth with governance in the Democratic Republic of Congo. In the past, mining has been the main engine of the Congo economy. But the revenues and other benefit streams generated by the sector over the years have not been used in a wise or sustainable fashion, largely due to key problems with sector governance. During the past ten years of civil war and conflict, flagship industrial mining declined substantially, and informal and artisanal mining expanded significantly. Now that peace has returned to most of the country and a new democratically elected Government is in place, the potential for the mining sector to contribute to economic growth is excellent. However, achieving growth with governance depends on three principal internal and external factors. The first of these, international commodity prices, is largely out of the Government's control. The second factor, political stability, is clearly critical to growth of the sector; however, a detailed discussion of this factor is outside the scope of this study. The third factor, rent-seeking culture, is at the heart of the challenge that the Government must overcome to ensure sustained sector growth with good governance. The probable future decline and fluctuation of commodity prices has several implications for the mining sector in DRC. First, the amount of investment funding available for minerals exploration and investment falls or rises in tandem with the commodity prices. During the first quarter of 2008 there has already been a significant fall-off in the amount of funding for smaller companies in the international exchanges, due in part to the financial turbulence in the markets. This fall-off in investment funding could be exacerbated further by a significant downturn in commodities prices. Second, producing companies will generate lower revenues, and the government will have a consequent decline in fiscal receipts. Third, companies will face pressure to maximize their economies of scale, generally by increasing through-put in order to meet fixed costs. At the same time, because of lower sales revenues, companies will be forced to reduce operating costs, often by cutting staff and social services. Fourth, lower commodity prices will have a direct effect on the artisanal producers of mineral commodities, whose day-to-day dependence on the amounts earned in the mines renders them highly vulnerable to fluctuations.