Boasting a natural resources wealth of over $24 trillion, the DRC has the potential to be the continent’s leading industrial and economic powerhouse. Its abundance of over 1,100 minerals and precious metals, 80 million hectares of arable land and a motivated, young workforce would, in normal circumstances, make the Congo a highly attractive investment location (World Bank, 08.04.2016).

Sadly, a range of political, economic and natural security issues have hindered its growth, and the country remains afflicted by pervasive poverty, regional instability, political turmoil and inadequate infrastructure.  

Political Turbulence
A key obstacle to investment in the DRC is arguably the country’s highly volatile and unstable political environment. The Kabila family has effectively consolidated and established a monopoly over the political, economic and judicial spheres. Accordingly, ties to the political elite have been a pre-requisite for MNCs and investors seeking to establish a foothold in the country. For foreign businesses interested in investing in DRC, the President’s twin sister, Janet, has traditionally acted as the first ‘gatekeeper’ to the inner circle of power. She is thus referred to as the “listener and decision-maker for the family’s business” and is responsible for sanctioning a large majority of government transactions.

As of January 2016, there has been increased political turmoil as President Kabila used his influence over the National Independent Electoral Commission (CENI) to postpone the scheduled November 2016 elections. Since 2015, state sanctioned violence and the repression of civil society activists and members of the political opposition have created extremely uneasy atmospheres in the countries key cities. It is likely that mass civil unrest will be a prevalent issue in the coming months as Kabila refuses to steps down on 19th December 2016. Naturally, excessive human rights abuses and state sanctioned violence and repression do not make a country endearing to FDI.

Regional Instability
Aside from prolific political turbulence, the DRC has suffered from extreme instability in its natural resource-laden east since the First Congo War (1996-1997). The form of regional networking prevalent in DRC – based on a kleptocratic political economy – undermines developmental projects and prospects for peace and stability, creating a de facto ‘war economy’.

A myriad of militia groups have sprung up in the largely ungoverned east with the common goal of self enrichment at the expense of local civilian populations. Conversely, Mai-Mai militant networks have formed to safeguard the natural resources in the region they inhabit from being exploited by outsiders, particularly Rwandophone communities (e.g. Tutsi). In short, rivalries between opposing militias (often based on religious or ethnic tensions) has resulted in regional insecurity.  

The issue has been proliferated by the fact that corrupt officers in the Congolese armed forces (FARDC) have actively provided military and logistical support to a number of these groups (i.e. Democratic Forces for the Liberation of Rwanda, FDLR) in return for facilitating their involvement in the illegal minerals trade.

Due to persistent government ineffectiveness to meet the basic need of its population, illicit and criminal networks fill this niche, and the cycle of violence in the east of the country endures. As many as 70 armed groups still engage in various illicit activities and fight localised wars with the government and each other. This issue is of particular concern for investors, as the vast majority of the country’s mineral wealth is located in the embattled eastern regions.

Naturally, MNCs are reluctant to engage in the nation’s range of lucrative investment opportunities where they are unable to guarantee the security of their assets or employees. The need to hire private security and increased insurance costs are also clear disincentives, while state and security forces collusion in illicit activities can also expose investors to reputational issues.  

Corruption
All sectors of the economy are impacted by corruption, with bureaucratic and administrative corruption widespread at all levels. Inefficient government structures, low salaries and a lack of oversight has facilitated the creation of an environment in which officials, civil servants and members of the security forces regularly extort businesses and civilians.

It has been estimated that corruption adds approximately 30-40% to the cost of transactions in DRC, compared with 10-30% in neighboring states (US Department of State, 05.2015). According to a 2013 World Bank report, Congolese firms were requested or expected to pay a bribe when soliciting public services, permits, or licences approximately 44% of the time. For sub-Saharan Africa as a whole, the average occurrence of such demands was 20%. Additionally, some 54% of Congolese firms are expected to issue gifts in meetings with tax inspectors (18% for the rest of Africa), and 52% in meetings with government officials to secure contracts (30% for the rest of Africa) (Atlantic Council, 05.2015).

While DRC is not a signatory to the UN Anti-Corruption Convention 2003 or the OECD Convention on Combating Bribery 1997, it did pass its own anti-corruption law in 2004 that was bolstered by the 2004 Money Laundering Act. Despite this, there is a lack of judicial will to apply or enforce the laws effectively affording corrupt officials unprecedented impunity. Consequently, such a pervasively corrupt environment is not attractive to most foreign investors.

Perhaps unsurprisingly, the judiciary and the institutions created to combat corruption lack autonomy and are largely ineffective. In particular, the public works sector has been riddled by corruption at all stages (i.e. planning, procurement, implementation and operation and maintenance). The processes of procurement and tendering are the must susceptible to illicit activities. While the Public Procurement Code (Law No.10/010) was passed by Parliament in April 2010, it has rarely been adhered to. For example, the Code requires that the government publicise contracts with a value equaling or exceeding the regulatory threshold.

Despite this requirement, there have been reports of cases where contracts were awarded behind closed doors, without a tender process. This has been particularly prevalent in the mining and oil and gas sectors, where individuals close to the Congolese elite have been awarded vastly undervalued concession in secret.

The provision of bribes, or ‘facilitation payments’, are also a frequently observed trend in public contracting. The most common form of bribery involves the contractor paying a representative of the client a fee to secure the award of the contract. Accordingly, the representative (i.e. a consulting engineer) will then recommend the prospective company’s bid to the client.

Cronyism and patronage are also considerable issues in the DRC, whereby those with connections to the Kabila family dynasty are awarded preferential access to lucrative state resources and tenders. Given this privileged access, it is hard for outsiders to gain a foothold in a country where the most attractive sectors have been monopolised by Kabila cronies.

Expropriation
Congolese land law contains provisions relating to the expropriation of property by the state if it serves a public interest (i.e. the illegitimate acquisition of property, the completion of public works, or if precious minerals have ben discovered). Where expropriation occurs, the state is obliged to offer reasonable compensation; however, there have been several recorded instances where this obligation has not been respected (US Department of State, 05.2015).  

Predictably, land associated with mining, energy and forestry are more vulnerable to state expropriation, thus this is a particular point of concern where investors are looking to exploit mineral resources.

Dispute Settlement / Legal Remedies
While in theory the DRC’s dispute resolution remedies appear adequate, in practice they have rarely been enforced due to deficiencies in the judiciary (which is appointed directly by Kabila). The country’s court system is afflicted by considerable corruption, while public administration is erratic and both domestic and foreign actors are subject to the highly selective application of the law.

In relation to property seizure / appropriation, MNCs and foreign investors may have slightly more security than Congolese nationals where they are able to invoke the protection of their respective embassies. Again, a country that cannot guarantee the security of investments does not inspire confidence.

Infrastructure
Like in a number of Sub-Saharan states, the DRC suffers from a chronic lack of investment in infrastructure. Arguably, the country has the most challenging transport infrastructure environment in Africa and the country’s vast geography, low population density, expansive forests and numerous waterways only complicate the issue (PwC, 19.05.2016). While efforts have been made to stimulate the Congolese economy, considerable investment is needed in its infrastructure.

Power blackouts and electricity shortages are frequent and present major problems to the rising number of mining and industrial companies operating in the country. Notably, the issue is worsening due to an increased demand for power and ageing infrastructure. Despite this demand, the country’s total installed energy-generating capacity has remained level for 20 years. It is estimated that 40% of firms in the DRC own and operate emergency generators to mitigate losses from frequent power disruptions. Accordingly, this results in higher operational costs and decreased productivity.

Notably, the country’s road and rail networks are insufficient to facilitate the increasing refined minerals output. An improved rail system would dramatically reduce transportation costs for the resources sector and increase general transport efficiency for the entire country by taking trucks off the roads. Due to persistent conflict and government neglect, road networks are in a poor state of repair and it is estimated that only 42% of the country’s roads are in an acceptable condition to support freight transport. According to World Bank estimates, the repair and maintenance of the DRC’s road network would require an annual investment of approximately $400 million per annum (Infrastructure News, 30.04.2014).

Ports
Due to the DRC’s geographic position in Central Africa, it is essentially landlocked. While its has access to the Atlantic Ports of Banana and Matadi in the far West, these ports are in a poor state of repair and are not sufficient to serve a country the size of the Congo. Matadi Port is the most important maritime port servicing 90% maritime traffic; however, it can only accommodate 10 large ships at one time. It also has a relatively small handling capacity of 2,500,000 metric tons of cargo per annum. The port also lacks sufficient handling equipment, which limits operations.

As the nation’s seaports are incapable of berthing conventional cargo liners, the country has to rely on transhipments from Pointe Noire in the Republic of Congo via smaller vessels. The country’s eastern regions are forced to look to Uganda and Rwanda for import/export routes via the Port of Mombasa (Kenya), while the southern provinces rely on routes to the port of Dar es Salaam (Tanzania) via Zambia for its main routes to export minerals and import supplies (Reuters, 20.07.2009).

Consequently, a lack of viable maritime infrastructure and the associated increase in transport costs certainly limits the country’s ability to attract foreign investment.

Taxes
The DRC’s high taxes are a further disincentive for investors, with a corporate income tax rate of 35% on profits (30% for mining companies) and supplementary taxes that can increase the total tax payable significantly (KPMG, 2013). Notably, tax on the local sale of locally manufactured product can reach up to 25%, while the personal income tax rate is based on a sliding scale with a maximum rate of 30% (Clifford Chance, 06.2013).

Though there are some tax incentives – i.e. Law No. 13/005 of 11th February 2014 – these are very specific and only grant tax advantages to companies investing at least $1 billion, and who sign a cooperation agreement with the government (African Law & Business, 06.11.2015). Additionally, Law No. 004/2002 of 21st February 2002 introduced a new investment code that introduced a preferential tax regime in certain regions and investments in certain sectors of activities. However, high corporate income taxes tend to negate these incentives.

Workforce
The DRC has the third-largest population on the continent – approximately 75 million as of 2014 – while a high population growth rate of 3.2% has only served to proliferate the country’s challenging socio-economic conditions (World Bank, 19.05.2016).

Despite a labour force of approximately 25 million, the large majority of labourers are unskilled and literacy levels are very low with only 23.2% of the population endowed with a secondary education. Unsurprisingly, labour productivity is extremely low and the GDP per capita recoded at just $484.2 in 2013 (World Bank). A visible shortage of skilled labour perpetuates an already challenging environment to potential investors.