2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013
Report

Openness To, and Restrictions Upon, Foreign Investment

The Democratic Republic of Congo (DRC) remains a highly challenging environment in which to conduct business. At the same time, the current government has taken several steps to improve the business climate and improve economic governance. 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 181 out of 185 in the 2013 World Bank Doing Business Report, a slight decrease from the 2012 report. However, the DRC has taken concrete actions taken in 2012 to improve the business climate. 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

2012

160 out of 176 countries

Heritage Economic Freedom

2012

172 out of 179 countries

World Bank Doing Business

2013

181 out of 185 countries

MCC Government Effectiveness

FY 2013

-0.78

MCC Rule of Law

FY 2013

-0.69

MCC Control of Corruption

FY 2013

-0.50

MCC Fiscal Policy

FY 2013

0.2

MCC Trade Policy

FY 2013

63.0

MCC Regulatory Quality

FY 2013

-0.76

MCC Business Start Up

FY 2013

0.462

MCC Land Rights Access

FY 2013

0.48

MCC Natural Resource Mgmt

FY 2013

60.4

MCC Access to Credit

FY 2013

9

MCC Inflation

FY 2013

15.5

The DRC government (GDRC) has taken several steps this year to improve economic governance and the business climate. In January 2012, the DRC implemented a value-added tax that has increased government receipts without provoking an inflationary crisis. The tax, implemented at the recommendation of the International Monetary Fund, distributes the tax burden more evenly throughout the Congolese formal sector and encourages certain informal operators to formalize. In July 2012, the DRC took a step toward increasing consumer confidence in its national currency, the Congolese franc, by introducing new larger denomination banknotes without causing any inflationary pressure. In August 2012, the DRC also officially adhered to OHADA, the Organization for the Harmonization of Business Laws in Africa, which updates and modernizes Congolese business law. There will however be an adjustment period as the Congolese judiciary adapts to the new legal framework. Finally, in September 2012, the GDRC began paying civil servants by direct deposit, an important initial step in eliminating graft and patronage within the government. Tracking of government salary payments has also revealed fictitious employees and other mechanisms that perpetuated corruption within the government under the previous cash payment system. An improved customs code went into effect in February 2011.

While these are all important, positive steps, concerns remain over transparency in awarding and enforcement of contracts and concessions, particularly in the extractive industries. In addition, 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. The lack of reliable electricity poses a serious challenge to many businesses as well, particularly in the mining sector. Corruption and mismanagement have driven much activity into the informal sector, and there are significant legal and systemic restraints to adequate contract enforcement.

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 in 2002 a one-stop agency called the National Agency for Investment Promotion (ANAPI). Independently run, ANAPI’s budget comes from public funds and was estimated at just USD 500,000 in 2012. ANAPI uses Investment Code provisions to simplify the investment process, to make procedures more transparent, to assist new foreign investors, and to improve the image of the DRC as an investment target.

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 with the goal of improving 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. 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. CPCAI has also achieved the elimination of 46 “zero-revenue” taxes among the 117 that were previously applied in cross-border trade.

In addition, the Steering Committee for the Reform of Public Enterprises (COPIREP), also funded by the World Bank but falling under the Ministry of Portfolio, seeks out foreign investors to enter into public-private partnerships (PPPs) to manage, reform, and revitalize ailing Congolese state-owned companies. 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 (SCTP), national airline (LAC) and rail company (SNCC). The government and state-owned Societe Nationale d’Electricite (SNEL) has begun to open the energy sector to private investment, and the Congolese Parliament will consider a law liberalizing the electricity sector in 2013.

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 services 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.

The DRC’s macroeconomic situation has stabilized and the economy has recovered significantly from the war at the turn of the century and the 2009 global economic crisis. Mining activity in copper and cobalt is very strong, and there is ongoing industrial exploration of significant gold deposits. GDP growth for 2012 was 7.2% and is projected to be over 8% in 2013. 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 reforms under the program. As a result, the DRC 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, as the DRC’s economy remains highly dollarized. The largest banknote in circulation is the 20,000 Congolese franc note (worth approximately USD 22), though it is very rare. Far more common are the 500 and 1000 franc notes worth approximately 50¢ and one dollar, respectively.

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.

Although the Congolese franc depreciated by 35% against the U.S. dollar between December 2008 and September 2009, it has stabilized as overall macroeconomic conditions have improved. The franc held its value against the dollar in both 2011 and 2012. The estimated annualized inflation rate in 2012 was under 10 percent, down from 18 percent in 2011. As of December 2012, the DRC held $1.7 billion in international reserves, sufficient for 11 weeks of imports.

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 2011 and 2012, the IMF and the World Bank criticized several mining contracts that the GDRC concluded without prior adherence to transparency principles and called for the contracts to be published. The GDRC published all but one of these; as a result, the IMF’s Extended Credit Facility program expired without the DRC completing the fourth, fifth, and sixth reviews of the program. 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. Environmental advocacy groups claim that industrial logging operations are exploiting a loophole in Congolese law that permits “artisanal” logging of sites by local citizens to circumvent regulation of their operations.

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 joined OHADA (Organization for the Harmonization of Business Laws) in August 2012. 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.

Performance Requirements/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 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. 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. The government said it would launch a public procurement website by December 2011, but it has not yet done so.

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 discussion only 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 Congolese Banking system has been significantly transformed and continues to improve, with new regulations and guidelines seeking to increase stability and promote expansion. While the banking sector appears to be booming, the banking penetration rate remains extremely low around two percent, which placed DRC among one of the most under banked nations in the world. With the exceptions of Kinshasa, Bas Congo and Katanga, the remaining DRC provinces do not have adequate banking coverage.

As of December 2012, there were 21 commercial banks and one development bank, SOFIDE (Societe Financiere de Development). All 21 banks are supported primarily with foreign capital. The DRC has additional regulated financial intermediaries, including 43 money transfer agencies and 19 credit cooperatives. Money transfer agencies are more concentrated in Kinshasa and Katanga provinces, while credit cooperatives are concentrated in North and South Kivu and Kinshasa Provinces. In 2011, the government established a National Microfinance Fund (FNM). DRC has approximately 1.6 million bank accounts in 2012, most of which are dollar-denominated. The volume of deposits increased from USD 835 million in 2008 to USD 2.34 billion in 2012. The overall balance sheets of the DRC banking system increased from USD 1.9 billion in 2009 to USD 3.47 billion while the lending volume exploded from USD 49 million in 2000 to USD 1.4 billion in 2012.

Through restructuring and recapitalization, the sector has improved over the past three years, aided by significant foreign investment. From 2009 to 2011, the percentage of non-performing loans dropped from 20 percent to six percent. Total bank capital nearly tripled between 2007 and 2011. DRC financial services are almost entirely focused on short term financing: 75.5 percent of credits disbursed are short-term, less than one year. The weakness of the legal system and the hostile business climate do not encourage banks to provide long term loans, despite the dire need for longer-term investment to finance the renovation and rehabilitation of the DRC’s derelict industrial and agricultural sectors. Loans are generally denominated in foreign currencies, diminishing what little confidence economic operators have in the national currency. There are limited possibilities to finance major projects in francs, given the banks’ limited holdings in the national currency (on average USD 12 million per bank), while foreign currency deposits account for on average 70.3 percent of their commitments.

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, the government converted twenty of them from public to private companies in December 2010, though the GDRC remains the sole shareholder. 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. The next step in the privatization process for these 20 companies is for the GDRC to evaluate and determine their real value and their real debt. These companies’ primary value exists in their real estate holdings, while they have serious problems with salary arrears, unpaid benefits, and huge unpaid debts to foreign creditors and to each other. Due to their inefficiency, these companies are not truly competitive in the truest sense, but they, their employee unions, and their other institutions occupy and congest a great deal of the economic space in their respective sectors.

Corporate Social Responsibility (CSR)

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 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 fund is to be managed by a local management committee composed of a representative of the concessionaire and at least five elected representatives of the local community and/or the indigenous people. Although the National Forestry Fund (FFN) exists as structured by the Ministry of Environment, it has encountered difficulty thus far in securing funding.

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, under a new constitution that established national and provincial governments. National presidential and legislative elections took place on November 28, 2011. The National Independent 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 were seriously flawed due to widespread irregularities, logistical problems, and a lack of transparency. Provincial and local elections, originally scheduled for 2012, are not expected to take place until no earlier than 2014, pending changes in the electoral laws and CENI’s makeup in the aftermath of the 2011 elections.

The United Nations has its largest peacekeeping operation in the world in the DRC. Known by its French acronym of MONUSCO, it has over18, 000 peacekeepers deployed throughout the country, with a majority of them 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. The DRC military has conducted a series of operations against the Democratic Forces for the Liberation of Rwanda (FDLR) and affiliated armed groups since January 2009. In April 2012, one of these formerly integrated groups calling themselves the M23 began an aggressive rebellion in North Kivu province, occupying large parts of the province and even occupying for two weeks in November the provincial capital of Goma. Supported externally from neighboring Rwanda, the group is currently in negotiations with the GDRC to end the conflict, although—barring full-scale security sector reform—a broader solution to the problem of armed groups is unlikely. Attacks, looting and exaction by numerous armed groups on local populations continue in North Kivu, South Kivu, and northern Katanga provinces, as well as the Ituri and Haut-Uele districts of Orientale province. Military efforts 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.

In addition to continuing instability in the eastern DRC, chronic strikes by civil servants, public transport providers and teachers continue to pose a potential source of social upheaval. Military and police personnel remain poorly trained and underpaid.

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 160 out of 176 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 law calls for imprisonment and fines for both parties to a bribe 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’s financial intelligence unit CENAREF to combat money laundering and misappropriation of public funds. The DRC is also a founding nation of the International Anti-Corruption Academy (IACA) in Vienna, Austria, which aims to substantially contribute to the global fight against corruption by addressing shortcomings in knowledge and practice in the field. Its principal mission is to deliver anti-corruption education and training for professionals and practitioners from all sectors of society. .

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. This country is party to [add instrument to which this country is party], but generally all countries prohibit the bribery and solicitation of their public officials.

OECD Anti-bribery Convention: The OECD Antibribery Convention entered into force in February 1999. As of March 2009, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA. The DRC is not a signatory to the OECD Convention.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 158 parties to it as of November 2011 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. The DRC is not a signatory to the UN Anti-Corruption Convention.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 34 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html) The DRC is not a party to the OAS Convention.

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 49 member States (48 European countries and the United States). As of December 2011, the Criminal Law Convention has 43 parties and the Civil Law Convention has 34 (see www.coe.int/greco.) The DRC is not a party to the Council of Europe Conventions.

Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. The DRC does not have a free trade agreement (FTA) in place with the United States.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

  • Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.
  • Information about the OECD Antibribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Antibribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf.
  • General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.
  • Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.
  • The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 213 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/index.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://data.worldbank.org/data-catalog/BEEPS.
  • The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/s?s=global+enabling+trade+report.
  • Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/.
  • Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 106 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

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.

The DRC does have a “Special Economic Zones” project to encourage foreign investment, with a pilot project being developed in Maluku, under the leadership of the Ministry of Economy and Commerce and the Ministry of Industry and Small and Medium Enterprises. The government has not yet clearly set forth the particular advantages of investing in such a zone.

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

2011

1,686.9

90.9

1,596

2012

1,901.9

323.6

1,578.3

ANAPI estimated that actual FDI in DRC as of December 31, 2012 stood at: $2.123 billion. According to ANAPI, the United States remains the largest investor in the DRC. In 2011, U.S. FDI stood at USD 519 million, representing 26% of total FDI for the year.

The following ANAPI-registered data are obtained from proposals by potential foreign investors. They summarize approved projects in services (including telecommunication, transportation, lodging, and electricity), industry (construction, mining, pharmaceuticals, brewery, manufacturing sector, and agribusiness), forestry / agriculture, and infrastructure.

FDI

(in USD million)

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2010

2011

2012

Services

512

1,230

1,635

Industry

757

697

470

Forestry / agriculture

323

39

18

Infrastructure

2023

61

Total

3,615

2,027

2,123

Web Resources

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