2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

Openness to Foreign Investment

The Democratic Republic of Congo (DRC) remains a highly challenging environment in which to conduct business. At the same time, the DRC’s rich endowment of natural resources, large population (approximately 71 million) and generally open trading system provide significant potential opportunities for U.S. investors. The DRC was ranked 178 out of 183 in the 2012 World Bank’s Doing Business Report, a slight decrease from the 2011 report. Performance registered by the DRC in a number of indicators is summarized in the table below (Millennium Challenge Corporation (MCC) indicators are measured on a scale of 0% to 100%. The MCC indicators are percentile rankings of the DRC in its low income group):

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2011

168 out of 182 countries

Heritage Economic Freedom

2011

172 out of 179 countries

World Bank Doing Business

2012

178 out of 183 countries

MCC Government Effectiveness

FY 2012

5%

MCC Rule of Law

FY 2012

5%

MCC Control of Corruption

FY 2012

7%

MCC Fiscal Policy

FY 2012

51%

MCC Trade Policy

FY 2012

29%

MCC Regulatory Quality

FY 2012

8%

MCC Business Start Up

FY 2012

0%

MCC Land Rights Access

FY 2012

26%

MCC Natural Resource Mgmt

FY 2012

63%

Underdeveloped infrastructure, inadequate contract enforcement, limited access to credit, continued insecurity in the eastern part of the DRC, lack of adequate property rights protection, and high levels of both bureaucracy and corruption continue to constrain private sector development. Corruption and mismanagement have driven much activity into the informal sector.

Since its first democratic elections in 2006, the DRC has made progress, albeit slowly, in addressing the country’s significant political, economic, and social challenges. Congolese investment regulations, codified in the Investment Code, do not discriminate against foreign investors, except in some specific cases dealing with labor and related taxes. However, foreign investors, like local businesses, often face harassment and subjective, opportunistic interpretation of regulatory and taxation policies. To overcome hurdles and to simplify and facilitate investment, the GDRC created a one-stop agency called the National Agency for Investment Promotion (ANAPI). This agency uses Investment Code provisions to simplify new investments and to make procedures more transparent. With support from international donors, the GDRC is also working to implement a series of reforms aimed at improving the business climate. Specifically, in August 2009, the GDRC launched the Steering Committee for the Improvement of Business and Investment Climate (CPCAI) under the Ministry of Plan to improve the GDRC’s ranking on the World Bank’s Doing Business report. The main objectives of CPCAI are to reduce red tape, decrease delays and the cost of establishing a business, improve transparency of procedures, and strengthen judicial security. The committee also plans to amend the current law on trade courts and to develop new legislation on competitiveness in business. CPCAI has reduced the amount of time required to publish the status of companies in the Official Journal to 48 hours and has also reduced the cost of obtaining a national identification number, two steps required to start business operations in the DRC.

Other measures undertaken by the GDRC to improve the business and investment climate include a 2010 revision of the customs law and a 2010 law ordering the creation of a value-added tax (VAT) that entered into effect January 1, 2012. The new customs code took effect on February 20, 2011. The new VAT, which took effect on January 1, 2012, assesses a rate of 16 percent on goods and services. While the VAT will increase collection of fiscal revenues and improve transparency and the investment climate, businesses fear that it could lead to price inflation, since it applies to all goods and services, including goods that were previously exempted. The Ministry of Finance conducted several public awareness campaigns on the new VAT and the Directorate General of Taxes (DGI) has published on its website a list of those subject to the VAT. While these are all important, positive steps, there remain concerns over transparency in awarding and enforcement of contracts and concessions, particularly in the extractive industries.

Broadly, there are no formal limits or screening mechanisms imposed upon foreign ownership of most businesses in the DRC. However, the processes of granting permits and licenses in the mining and telecommunication sectors often suffer from arbitrariness, lack of transparency, and corruption. Investment projects which benefit from Investment Code incentives must have an assessment control completed by ANAPI agents every six months. Small businesses are subject to presidential decrees number 79-021 of August 2, 1979 and number 90-046 of August 8, 1990, which prohibit foreign investors from engaging in retail commerce. The government defines a small businesses as follows: a) Traditional companies that do not employ more than 10 employees, b) small transportation carriers that do not have more than 10 vehicles which do not weigh more than 7 tons, c) restaurants which have a maximum of 3 employees and do not have more than 20 seats, d) small hotels and e) small shops or kiosks.

All investors in the DRC face multiple audits by various government enforcement agencies seeking evidence of violations of tax laws or price controls. Foreigners and Congolese alike suffer the consequences of non-functional judicial institutions. Inadequate physical infrastructure – including internal land, river, and air transport, energy and social infrastructure – presents a serious challenge and additional cost for nearly all commercial operators in the DRC. International donors and a 2009 multi-billion dollar Sino-Congolese agreement have begun to provide critically needed resources for infrastructure development, but significant constraints persist.

Restructuring of approximately 60 Congolese parastatals, none of which are profitable, continues slowly. These parastatals include the national power utility (SNEL), port and river authority (ONATRA), national airline (LAC) and rail company (SNCC). The GDRC acknowledges the need for reform and the Portfolio Ministry continues to work to improve the situation. The government and state-owned Societe Nationale d’Electricite (SNEL) have begun to open the energy sector to private investment.

The global financial crisis had a dramatic impact on the DRC’s economic environment in late 2008 and throughout 2009. The mining sector significantly contracted due to falling international commodities prices, a tightening of international credit, and dampened investor confidence in the sector. With the support of international emergency assistance and improved prices for key export commodities, the DRC’s macroeconomic situation has stabilized and the economy has recovered significantly. Mining activity in copper and cobalt is very strong, and there is ongoing industrial exploration of significant gold deposits. GDP growth for 2010 was 6.1% and is projected to be 6.2% in 2011. The IMF’s Executive Board approved a new three-year Extended Credit Facility (formally the Poverty Reduction and Growth Facility) in December 2009. The DRC reached the Heavily Indebted Poor Country (HIPC) completion point for debt relief in 2010, following a determination by the IMF and World Bank boards that the DRC had successfully implemented policy measures under the program. As a result, the DRC has received forgiveness of $12.3 billion in sovereign debt, freeing critically needed resources for poverty reduction programs. Several bilateral debt cancellations with the DRC occurred in 2011 for a total of $4.7 billion.

One trend of note in recent years is the propagation of so-called “vulture fund” legal actions against the DRC government for recuperation of decades-old unpaid private debts owed by DRC parastatal companies. These legal actions have sought to sequester and redirect profits and other payments owed by private multinational companies to DRC public enterprises through joint venture projects, including mining joint ventures. These “vulture fund” legal actions add uncertainty to the investment climate, especially for private multinational companies which are in joint ventures with DRC public enterprises.

Conversion and Transfer Policies

The DRC adopted a free-floating exchange policy in 2001 as part of the implementation of broader economic reforms. The DRC has also lifted restrictions on business transactions nationwide. International transfers of funds take place freely when sent through a local commercial bank. The bank declaration requirement and payments for international transfers now take less than one week to complete, on average.

The Central Bank is responsible for regulating foreign exchange and trade. The only currency restriction imposed on travelers is a USD 10,000 limit on the amount an individual can carry when entering or leaving the DRC. The GDRC also requires that the Central Bank license exporters and importers. The DRC’s parallel foreign exchange market is large and tolerated by the government. The largest banknote in circulation is the 500 Congolese franc note (worth approximately 50¢). The DRC’s economy remains highly dollarized.

Exchange regulations forbid banks from providing loans that exceed 5% of their assets. Banks are permitted to provide investors with financing without a mortgage, if the investor has a good business relationship with his or her bank. The Central Bank is currently working on implementing a modernized payment system in the DRC that would allow businesses to use different kinds of payment tools.

The DRC’s currency, the Congolese Franc, depreciated by 35% against the U.S. dollar between December 2008 and September 2009 but has stabilized as overall macroeconomic conditions have improved— The annual depreciation rate of the Congolese Franc against the U.S. dollar was 1.5% in 2010, and the franc held its value against the dollar in 2011. The estimated annualized inflation rate in 2010 was under 10%. The inflation rate in 2011 is expected to be 18 % as a result of worldwide increases in food and fuel prices. International reserves hit a historically low level of $30 million in February 2009, but significantly increased throughout the remainder of 2009 and 2010 due to emergency financial assistance from several international donors, the arrival of the first tranche of a signing bonus under the Sino-Congolese minerals-infrastructure agreement, the DRC’s drawing on the IMF’s Special Drawing Rights (SDR) allocation and ensuing debt relief received after the DRC reached the HIPC completion point. As of November 2011, the DRC held $1.4 billion in international reserves.

Expropriation and Compensation

The DRC’s land law allows for expropriation of property by the government for the sake of public interest, such as the protection of community heritage, completing public works (such as infrastructure projects) and the presence of precious minerals. The illegitimate acquisition of property is also grounds for expropriation. In any case of expropriation, the GDRC is required to offer fair compensation; as with many Congolese laws, these requirements are not always fully respected. Activities that have an impact on the environment, such as mining, energy and forestry are at greater risk for expropriation.

There have been no expropriation actions against U.S. citizens in the past year. Post is aware of a number of existing claims against the GDRC, some of which were taken to arbitration (see Dispute Settlement section below). Arbitration judgments against the GDRC, however, have not been paid in a timely manner, if at all. There are no laws forcing local ownership, although parastatal companies involved in the petroleum and mining sectors maintain minority shares of most foreign-owned projects.

In October 2010, the GDRC completed a lengthy review of 61 mining contracts dating from 1997-2002 between DRC public enterprises and private companies. The review, initiated in 2007, faced numerous delays and criticism over its lack of transparency. In October 2011, the IMF and the World Bank criticized two August 2011 mining contracts that the GDRC concluded without prior adherence to transparency principles. As a result the IMF refused to conclude its fourth review of the DRC under the PEG 2 (the DRC Government’s Economic Program) until the GDRC addresses these issues. According to a November 2011 British Parliamentarian’s report, questionable sales of mines and oil assets owned by public enterprises have cost the DRC treasury more than $5.5 billion over the past four years.

A recent review of concessions in the forestry sector aimed at cleaning-up corruption resulted in the cancellation of a significant number of timber logging contracts. In January 2011, the GDRC announced the conclusion of the logging sector concession review process. The GDRC determined that 80 of the 156 logging contracts were eligible to be converted into new logging concession contracts. The GDRC required that the companies holding these 80 contracts submit a project management plan by the end of 2011 and address corporate social responsibility (CSR) issues. The GDRC cancelled the other 76 contracts, which it did not convert.

The GDRC continues to work with civil society, local communities and logging companies on implementation of post-conversion requirements. The forestry sector conversion process has been largely successful in addressing many concerns for the sector. Nevertheless, the forestry sector has encountered numerous problems, including the lack of enforcement of forestry laws and the marginalization of local communities by logging companies.

Dispute Settlement

The U.S.-DRC Bilateral Investment Treaty (BIT) provides for International Center for Settlement of Investment Disputes (ICSID) reconciliation or binding arbitration in the case of investment disputes. In the case of a dispute between a U.S. investor and the GDRC, the investor is subject to the Congolese civil code and legal system. If parties cannot reach agreement, under the terms of the U.S.-DRC BIT, the dispute is taken to the ICSID or the Paris-based International Chamber of Commerce (ICC). A number of U.S. firms pursued claims against the GDRC for damages resulting from civil disturbances by military mutinies in 1991 and 1993. Two investors have won settlements from the ICSID. In early 2004, a claimant under the BIT won a settlement from ICSID but has not yet collected payment from the GDRC. The other investor, who successfully collected the compensation awarded by the ICSID, received damages in 1999. A third U.S. company won a settlement from a Jersey, Channel Islands court in October 2010, but has not yet collected payment from the GDRC.

The DRC is not a Party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. On paper, the DRC’s official policies are satisfactory and even attractive to business, but in recent years they have often been inoperative in practice due to problems with the judicial system. Courts are marked by a high degree of corruption, public administration is not reliable, and both expatriates and nationals are subject to selective application of a complex legal code. Official channels often do not provide direct and transparent recourse in the event of property seizure, for which legal standing can rarely be determined. Seizures have been made via the police and/or military, often supported by questionable decisions from the courts. Foreign enterprises may have slightly better security of ownership due to the presence and intervention of their diplomatic missions. Many Congolese business contracts provide for external arbitration, but this is an expensive and time-consuming option with little value for resolving routine, day-to-day business problems.

In 2008, the DRC established commercial courts in Kinshasa and Lubumbashi for the first time, with additional commercial courts scheduled to be established shortly in the remaining DRC provinces. These courts are slated to be led by professional judges with expertise in commercial matters and may assist investors to address commercial claims within an otherwise inadequate judicial system. The DRC is poised to join OHADA (Organization for the Harmonization of Business Laws); the DRC Parliament passed the required legislation for OHADA accession in December 2009 and President Kabila promulgated the law in February 2010. The core purpose of OHADA is to promote economic development and integration between its members, as well as to ensure a secure commercial environment in Africa. OHADA members agree to adopt a common set of commercial laws – including contract, company and bankruptcy laws – and to submit interpretation of those laws to the final jurisdiction of the OHADA court, which sits in Abidjan in the Ivory Coast. The government officially launched the National OHADA Commission in April 2010. The DRC had expected to complete OHADA accession by November 2010, and the OHADA treaty was to have taken effect on January 1, 2011. However, President Kabila ordered that judges be trained in the OHADA law prior to signing and depositing the instrument of OHADA accession. As of December 2011, no new date had been given for OHADA accession.

Performance Requirements and Incentives

The DRC does not have any barriers specifically targeting or restricting U.S. trade or investment. There are, nevertheless, some non-tariff related barriers present, including the multitude of taxes collected on imported goods by several government agencies without any coordination and expensive, slow and burdensome commercial/customs procedures. The DRC has not maintained any measures that are inconsistent with the WTO’s TRIMs requirements. The 2002 Investment Code is a simplified and improved version of its predecessor. Although there are no specific performance requirements for foreign investors, there are investment conditions that must be discussed and agreed upon with the DRC investment agency, ANAPI, to assure equitable treatment and procedures for all qualified foreign investments. The DRC has shortened this agreement procedure to approximately 30 days, and has created a number of incentives to attract foreign investment to the country. Pro-business incentives range from tax breaks to duty exemptions granted for three to five years, and are dependent upon the location and type of enterprise, the number of jobs created, the extent of training and promotion of local staff, and the export-producing potential of the operation. Investors who wish to take advantage of customs and tax incentives of the new 2002 Investment Code must apply to ANAPI, who will in turn submit their applications to the Ministries of Finance and Plan for approval. A Congolese business conglomerate and two Congolese breweries have taken advantage of these incentives. The Ministry of Labor controls expatriate residence and work permits. For U.S. companies, the BIT assures the right to hire staff of their choice to fill some management positions, but the companies agree to pay a special tax on expatriate salaries. There is no requirement that investors purchase from local sources or export a certain percentage of output.

Performance requirements agreed upon initially with ANAPI include a timeframe for the investment, the use of Congolese accounting procedures and periodic authorized GDRC audits, the protection of the environment, periodic progress reports to ANAPI, and the maintenance of international and local norms for the provision of goods and services. The investor must also agree that all imported equipment and capital will remain in place for at least five years. There is no discriminatory or excessively onerous visa, residence or work permit requirement designed to prevent or discourage foreigners from investing in the DRC, though corruption and bureaucracy can create delays in obtaining necessary permits. In 2008, the GDRC passed a resolution to abolish four burdensome requirements for establishing a company in the DRC, including the civil servant attestation, resident’s certification, a document with the company seal on it, and a police background check certification. ANAPI and the Congolese Chamber of Commerce (FEC) play a vital role in addressing business issues in the DRC.

According to the terms of the Investment Code, the GDRC may require compliance with an investment agreement within 30 days of notification. Continued violations of an agreement may result in sanctions, including repayment of benefits received (such as tax exemptions) and eventual nullification of the agreement.

In the case of a dispute between a U.S. investor and a GDRC agency, the investor is subject to the Congolese civil code and legal system. If the parties cannot reach agreement, under the terms of the U.S.-DRC BIT the dispute is taken to the ICSID or to the Paris-based International Chamber of Commerce (ICC).

Foreign investors may bid on government contracts on the same terms as domestic investors. Foreign firms may even be favored in the bidding process because they can more easily access and present international insurance funding guarantees. There is no discrimination against U.S. or foreign firms in participating in government-sponsored or subsidized research and development programs, since participation is done on a national treatment basis. With the sponsorship and technical assistance of the World Bank, a tender board now works under the supervision of the Ministry of Budget. Normally, however, public companies and/or parastatals do not participate in the bidding process, due to the financing guarantees required beforehand. In addition, contracts are often negotiated directly with the GDRC, not through an international tender process, thus reducing transparency. Parliament passed a new procurement law in April 2010 and the GDRC has also adopted key implementing steps, , institutions, and a manual of procedures to implement the new procurement law. By the end of December 2011, the General Directorate of Public Procurement Control (DGCMP) hopes to launch a public procurement website.

Right to Private Ownership and Establishment

The DRC’s Constitution (chapter 2, articles 34-40) protects private ownership without discrimination between foreign and domestic investors. It also protects investments against takeover, unless the investment conflicts with some overriding public interest. In this case, there are legal provisions for equitable and appropriate compensation for the parties involved.

Foreign investors can operate in the DRC either through establishing a branch or local subsidiary. The individual business may either be designated a “Société en Commodite Simple” (SNC), a “Société Privée à Responsabilité Limité (SPRL), a “Société par Actions à Responsabilité Limité (SARL), or a “Société Cooperative.” The most common adopted forms of establishment are the SPRL and SARL, which are both limited liability companies. While in an SPRL shares are not freely negotiable, SARL shares are freely negotiable in principle, unless there are particular arrangements already within the SARL. Incorporation of an SARL requires a minimum of seven shareholders. Furthermore, incorporation of an SARL requires authorization of the Head of State. The Ministry of Justice is entitled to receive 1% of the original stock invested in the business by its founders. Some sectors, including mining, insurance, and banking, have different procedures for creating a company.

The GDRC has restricted one category of small businesses to Congolese nationals. This covers artisanal production sector activities, small retail commerce, small public transport firms, small restaurants, and hotels with fewer than ten beds. Despite GDRC restrictions, some foreign-owned small retailers, particularly Chinese-owned stores, have recently appeared on the market.

Protection of Property Rights

Despite attempts to enforce existing legal provisions, protection of property rights remains weak and dependent upon a currently dysfunctional public administration and judicial system. Some senior-level officials are making efforts to restore and improve the legal and administrative frameworks, but the challenge remains to implement these changes at a practical level.

Ownership interest in movable properties (e.g. equipment, vehicles, etc.) is secured and registered through the Ministry of the Interior’s Office of the Notary. Real estate property (e.g. buildings and land) is secured and registered at the Ministry of Land’s Office of the Mortgage Registrar.

The GDRC continues to undertake efforts to improve legislation in regards to Intellectual Property Rights (IPR) and build capacity to improve implementation and enforcement. In principle, IPR are legally protected in the DRC, but enforcement of IPR regulations is virtually non-existent. The DRC’s legal system and public administration do not have the capacity to enforce intellectual property regulations. The country is a signatory to a number of international agreements with organizations such as the World Intellectual Property Organization (WIPO), and the Paris Convention for the Protection of Intellectual Properties, which protects trademarks and patents. The DRC is also a member of the Berne Convention that protects copyrights, artistic works, and literary rights. The maximum protection that these conventions provide is 20 years for patents and 20 years, renewable, for trademarks, beginning from the date of registration. If it is not used within three years, a trademark can be cancelled. The DRC has not yet signed the WIPO Internet Treaties.

In July 2011, the Ministry of Culture and Art established the Sociéte des Droits d’Auteur et des Droits Voisins (SOCODA) to address IPR issues faced by authors. The Ministry of Culture in collaboration with SOCODA has presented a law to the government that seeks to rectify the flaws of the existing 1986 IPR law. The law is still pending Parliamentary approval.

Transparency of the Regulatory System

Implementing a transparent regulatory system is still a challenge in the DRC. The GDRC is making some effort to improve the situation, including through appropriate legislation enacted by the parliament, but is still far from securing a complete legal and regulatory framework for the orderly conduct of business and the protection of investment. The GDRC authority on business standards, the Congolese Office of Control (OCC), oversees participation by foreign businesses.

There are no formal or informal provisions by any private or public structure, in any business-related environment, used to impede foreign investment. Problems encountered within the GDRC tend to be administrative and/or bureaucratic in nature since reforms and improved laws and regulations are often poorly or unevenly applied. Proposed laws and regulations are not published in draft format for public discussion and comments. Normally the only discussion occurs within the governmental or administrative entity that drafts them and at the parliament prior to a vote. The Congolese public, as well as foreign and domestic investors, do not receive an adequate opportunity to discuss or comment on these proposals.

In 2008, the DRC became a candidate country for the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder effort to increase transparency in transactions between governments and companies in the extractive industries. The GDRC has taken some positive steps under EITI, including establishment of a National EITI Committee, publication of the first report on EITI in the DRC, and the hiring of an independent auditor to carry out the validation of the EITI process. However, the DRC did not meet its March 9, 2010 validation deadline. The EITI Secretariat granted the DRC a six-month extension (until September 9, 2010) to complete the validation. The independent auditor subsequently validated the report, and the National EITI Committee approved and transmitted it to the International EITI Secretariat in Berlin on September 8, 2010. The validation of the first EITI report was hailed as an important step towards improving transparency and accountability in DRC’s management of natural resources. On December 14, 2010, the EITI Board designated the DRC as an EITI Candidate Country that is “close to compliant” and gave the DRC six months (until June 12, 2011) to complete the remaining steps in order to achieve “compliant” status. However, the DRC did not meet its requirements. The EITI Secretariat has given the DRC an 18-month extension until March 2013 by which it must become compliant or withdraw from EITI consideration.

Efficient Capital Markets and Portfolio Investment

Economic growth in the DRC since 2002 has increased the flow of money in the finished goods and raw materials market. Credit markets are also becoming more active, mainly in the commercial project and medium-term project sectors. All economic operators, foreign and domestic, have access to credit markets in the DRC without discrimination, as long as they can provide credible guarantees. Foreign investors, though, are more likely to benefit from this type of credit, since they are able to provide guarantees and collateral secured by foreign banks.

The commercial banking system has undergone a full reorganization and continues to expand. Strengthened supervision of the commercial banking sector, including improving the regulatory framework for the financial sector, is a component of DRC’s formal IMF program. However, the commercial banking sector remains small. With the exception of Kinshasa, Bas-Congo and Katanga, the remaining DRC provinces do not have adequate banking coverage. As of 2011, there were 20 commercial banks, two specialized financial institutions, one savings bank, one hundred twenty co-operative banks, thirty –four financial agencies, twelve exchange offices and nineteen micro-finance institutions, with a total of 800,000 accounts. Another two banks are in the process of becoming commercial banks. The volume of deposits increased from USD 835 million in 2008 to USD 1 billion in 2011. The overall balance sheets of the DRC banking system increased from USD 1.9 billion in September 2009 to USD 2.3 billion in December 2010, an increase of 21 percent.

Commercial banks generally provide loans to individuals in amounts not to exceed six months of their salary. Portfolio investment is not yet developed in the DRC. Business practices in the DRC are still at a fairly rudimentary level. Cross-shareholding and stable shareholding arrangements are not common in the DRC. There are occasional complaints about unfair competition between investors in profitable sectors such as mining and telecommunications.

Competition from State-Owned Enterprises (SOEs)

The GDRC, with support from international donors, continues to work to reform state-owned enterprises (SOEs). To boost the efficiency of SOEs, many of which have been plagued by years of mismanagement, Prime Minister Adolph Muzito signed five ministerial decrees in April 2009. The decrees focused on transforming these SOEs into profitable commercial companies, public establishments (which would be autonomous from any ministry) and public services (which are directly tied to a particular ministry). Some SOEs would be dissolved. SOEs that have been targeted for reform include those operating in the mining, energy, industry, transport, telecommunications and finance sectors. The government and state-owned Société Nationale d’Electricité (SNEL) have begun to open the energy sector to private investment.

In December 2010, the GDRC changed the legal status of 20 SOEs from parastatal companies to commercial entities. These 20 companies are now subject to the law governing private investments and provisions of OHADA. The next step in the privatization process for these 20 companies is for the GDRC to evaluate and determine their real capital shares. The government remains the only shareholder in all 20 of these companies.

Corporate Social Responsibility

Awareness about Corporate Social Responsibility (CSR) is growing, though largely among the large, multinational investors in the DRC, many of whom have formal CSR programs. The GDRC requires that mining, oil, and logging companies comply with CSR obligations before beginning operations. Under the Mining Code of 2002, mining companies are required to submit an environmental impact statement. Mining companies are also required to support infrastructure projects, such as roads, schools and hospitals. CSR provisions are also included in the 2002 Forestry Code, which requires forestry concessionaires to support social and physical infrastructure projects in the communities in which they operate. CSR is also reflected in the sustainable use of forestry resources. In November 2009, the Ministry of Environment, Conservation of Nature and Tourism held a workshop to analyze and propose procedures for local communities to share benefits from logging concessions. Participants at the workshop agreed on key principles that may guide the implementation of corporate social responsibility within the DRC forestry sector, including a social agreement that engages reciprocally both sides (the timber concession companies and the local communities) and payment by timber concession companies that would be made at two levels (construction of socioeconomic infrastructure on a per cubic meter of harvested timber basis and in-kind payment for actions of common interest). The local community would collaborate with concessionaires to fight against illegal logging and wildlife poaching and also participate in the sustainable management of forest resources. These principles were incorporated in a Ministerial Decree signed by the Minister of Environment, Conservation of Nature and Tourism in June 2010, which specifies the social responsibility requirements in a forestry concession contract. The Decree mandates the establishment of a Development Fund to finance the construction of socioeconomic infrastructure with the payment of US $2 to $5 per cubic meter of harvested timber, depending on the tree species. The Development Fund is managed by Local Management Committee composed of a representative of the concessionaire and at least five elected representatives of the local community (ies) and/or the indigenous people.

Political Violence

The DRC has suffered bouts of civil unrest and conflict for many years. Large-scale military looting in 1991 and 1993, for example, resulted in significant loss of economic productive capacity and flight of foreign investors. In addition, widespread looting and destruction associated with wars in the DRC from 1996-1997 and from 1998-2003 further damaged Congolese economic activity.

The country’s first democratic elections in more than 40 years took place in 2006 and established national and provincial governments. National presidential and legislative elections took place on November 28, 2011. The National Electoral Commission (CENI) declared and the Supreme Court certified the incumbent President Kabila as the winner of the presidential elections, although local and international observers reported that the elections lacked credibility due to widespread irregularities, logistical problems, and a lack of transparency. Provincial and local elections are scheduled to take place in 2012 and 2013.

The United Nations has one of the largest peacekeeping operations in the world in the DRC. Known by its French acronym of MONUSCO, it has around 18,000 peacekeepers deployed in the country – primarily in the east. Violence nevertheless persists in the Eastern DRC due to the presence of several foreign armed groups and local militias, some of which have been loosely integrated into the Armed Forces. Sporadic outbreaks continue to occur in North Kivu, South Kivu, and northern Katanga provinces, as well as the Ituri and Haut-Uele districts of Orientale province. A lengthy military campaign against the Lord’s Resistance Army in Haut Uele has diminished its strength and operational capability, but small units of the group operate in and transit the northeastern DRC, terrorizing the local population. The DRC military has conducted a series of operations against the Democratic Forces for the Liberation of Rwanda (FDLR) since January 2009; these are continuing in both Kivu provinces.

In addition to continuing instability in the eastern DRC, strikes by civil servants and teachers over salary and benefit issues have occurred and continue to pose a potential source of social upheaval. Military and police personnel remain poorly paid and trained. Often police and other public servants strike or resort to petty corruption after not receiving salaries for some time.

Corruption

U.S. businesses often complain about corruption in the DRC, citing it as a principal constraint to doing business in the country. The Mobutu regime created a culture of corruption in the DRC during more than 30 years of rule. This ingrained culture permeated the private, public, administrative, and business environments and has been difficult to root out. The DRC was ranked 168 out of 182 nations on Transparency International’s 2011 Corruption Perception Index.

In principle, there are legal provisions to fight and sanction corruption. The DRC is not a signatory to the UN Anti-Corruption Convention. However, the DRC did pass its own anti-corruption law in 2004. Additional legislation includes the 2004 Money Laundering Act, under which the DRC cooperates with African and European crime-fighting organizations. Despite these reform efforts, however, bribery is still routine in public and private business transactions, especially in the areas of government procurement, dispute settlement, and taxation. The DRC is not a signatory of the OECD Convention on Combating Bribery. In September 2007, the DRC ratified the protocol agreement with SADC (Southern African Development Community) on Fighting Corruption. The GDRC is also preparing to ratify the African Union Convention on the Prevention and Fighting of Corruption. The DRC’s eventual accession to OHADA will also address corruption issues.

The law calls for imprisonment and fines for both parties to the bribery no matter the circumstances. However, law enforcement remains a challenge in this area.

In October 2002, the DRC passed a law establishing an Observatory for the Code of Professional Ethics, which promotes ethical behavior among civil servants in the workplace. The Congolese Court of Accounts and the Congolese Anti-Corruption League NGO (in French, “La Ligue Congolaise de Lutte contre la Corruption”) are also entities that work closely on corruption matters in the DRC. In order to enforce anti-corruption laws among civil servants and members of the government, in September 2009, President Kabila launched a “zero-tolerance” campaign. Within this framework, he established the DRC Financial Intelligence Unit to combat money laundering and misappropriation of public funds. In March 2011, the DRC co-founded the International Anti-Corruption Academy (IACA), which aims to identify shortcomings in the fight against corruption. IACA currently offers standardized and tailor-made training sessions and is scheduled to offer academic degree programs in 2012.

Bilateral Investment Treaties

The United States and the DRC (then-Zaire) signed a Bilateral Investment Treaty (BIT) in 1984 that entered into force in 1989. This treaty guarantees reciprocal rights and privileges to each country’s investors. The BIT provides for binding third-party arbitration in the event of an investment expropriation dispute.

Germany, France, Belgium, Italy, South Korea, and China (PRC) have signed bilateral investment agreements with the DRC. South Africa and India will conclude a bilateral investment agreement with the DRC shortly. Lebanon, Ivory Coast, and Burkina Faso have negotiated, but not yet signed, bilateral investment treaties with the DRC.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC), which provides political risk insurance and project financing to U.S. investors and non-governmental organizations, ceased operations in the DRC for a time following the events of 1991. Since the establishment of the transitional government in June 2003, OPIC has granted three political risk insurance contracts in 2004, another in 2005, and is currently reviewing additional applications by American-owned companies. In March 2006, the DRC signed an accord with OPIC that will expedite the process of obtaining political risk insurance and financing.

The DRC is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers insurance on new foreign investments to protect against foreign exchange losses, expropriation, and civil unrest. The GDRC is negotiating now for complete resumption of the MIGA program, which would allow for investment insurance in other sectors of the economy. The DRC is also a member of the African Trade Insurance Agency, which also provides political risk insurance.

In FY 2011, USAID launched new USG Development Credit Authority (DCA) loan guarantee agreements with two commercial banks operating in the DRC to help catalyze the availability of credit in the agricultural and small enterprise sectors. The DCA portfolio loan guarantee with one commercial bank in partnership with a large American mining company created a facility for leveraging up to $5 million to promote access to credit for small and micro enterprises (SMEs) throughout Katanga Province. In addition, USAID established a second DCA with a commercial bank operating in the DRC. This DCA will promote lending to micro, small and medium enterprises in the agriculture sector nationwide throughout the agricultural value chain.

Labor

The DRC’s large urban population provides a ready pool of available labor, including a significant number of high school and university graduates, a few of whom have studied at American universities. Employers cannot, however, take diplomas at face value. Skilled industrial labor is in short supply and must usually be trained by individual companies.

The GDRC sets regional minimum wages for all workers in private enterprise, with the highest pay scales applied in the cities of Kinshasa and Lubumbashi. Wages have not kept pace with the DRC’s rate of inflation. While most foreign employers pay higher wages than the official minimum wage, the average Congolese worker has had to cope with falling real wages for over a decade.

The 2002 Labor Code modified the country’s labor legislation, which is in compliance with the conventions and recommendations of the International Labor Organization. The code provides for tight control of labor practices and regulates recruitment, contracts, the employment of women and children, and general working conditions. Strict labor laws can make termination of employees difficult. The code also provides for equal pay for equal work without regard to origin, sex, or age. The code formally permits a woman to gain employment outside of her home without her husband’s permission.

Employers must cover medical and accident expenses. Larger firms are required to have medical staff and facilities on site, with the obligations increasing with the number of employees. Mandated medical benefits are a major cost for most firms. Employers must provide family allowances based on the number of children, and paid holidays and annual vacations, based on the years of service. Employers must also provide daily transportation for their workers or pay an allowance in areas served by public transportation. Outside the major cities, large companies often assist by providing infrastructure, such as roads, schools and hospitals. Many labor regulations have been only sporadically enforced in recent years. The Ministry of Labor must grant permission for staff reductions. Generous pensions and severance packages are required by the labor code.

Every foreign employee must apply for a work permit from the National Committee of Employment of Foreigners within the Ministry of Labor. The right to strike is recognized and the law provides for reconciliation procedures in cases where the government is not involved.

Foreign Trade Zones/Free Ports

The DRC does not have any areas designated as free trade zones or have any free ports. The DRC is a member of the Southern African Development Community (SADC) and the Common Market of Eastern and Southern Africa (COMESA), but has not yet joined either the COMESA or SADC free trade areas (FTAs). The Ministry of Finance has already given funding to the Eastern and Southern African Trade and Development Bank (PTA) to approve the DRC as the beneficiary of the bank. PTA would compensate for loss of DRC customs revenues when the DRC becomes an effective member of the COMESA FTA.

Foreign Direct Investment Statistics

Obtaining reliable statistical data on foreign direct investment (FDI) in the DRC remains a challenge. In order to alleviate this problem, the DRC Secretariat General of Trade, with assistance from the European Union, is undertaking a project to establish a Center for Research and Analysis of Commercial Statistics. There are currently two sources of information on FDI in the DRC: the Central Bank (BCC) and the National Agency for Investment Promotion (ANAPI).

BCC statistics are based on funds reported to the bank from actual investment projects underway, and are more accurate than those of ANAPI. These figures, however, may not capture all FDI flowing in the DRC; therefore, the quality of the BCC data is undetermined. Actual FDI amounts are probably higher than the BCC figures shown here. For the last four years, BCC has published the following totals:

FDI (in USD million):

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Year

FDI in the DRC

DRC Investment Abroad

Net FDI

2007

1,808.00

14.30

1,793.70

2008

1,726.80

54.10

1,672.70

2009

663.80

34.80

629

2010

2,939.30

7.20

2,932.10

ANAPI estimated that actual FDI in DRC as of October 2011 stood at: $2.965 billion. ANAPI added that the United States is the largest investor in the DRC. ANAPI has agreed to U.S. investment of $562 million in the DRC and these U.S. investment projects are now in the process of being fully implemented.

The following ANAPI-registered data are obtained from proposals by potential foreign investors. They summarize approved projects in services, the manufacturing sector, the food sector, pharmaceuticals, forestry and agriculture, and infrastructure.

FDI (in USD million)

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2007

2008

2009

2010

2011 (as of October 2011)

Services

813

1,365

1,739

512

1,334

Infrastructure

113

265

2,023

93

Food

99

143

139

Beverages/Brewery*

Pharmaceuticals

33

Agriculture/Forestry

246

40

323

30

Manufacturing

54

261

331

618

518

Total

867

2,084

2,551

3,615

1,975

* The amount of FDI in Beverages/Brewery is included in the “Manufacturing” category in the table above. According to ANAPI, the Beverage and Brewery Sector since October 2010 contains $844,200 in FDI.

In 2010, infrastructure dominated FDI in the DRC (accounting for 55% of the total). President Kabila’s five-year program, known as the five pillars or “cinq chantiers” in French, which focuses on five priority areas (infrastructure; employment; education; water/electricity; and health) was the main impetus behind this dominance of infrastructure.

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