Low Commodity Prices Threaten the Congo

Many African countries have in recent years, shown phenomenal economic development. However, recent developments on global markets – including the stop by prices of commodities for example oil, copper, and cobalt – have raised questions about the sustainability of Africa’s economic growth.

The lack of stability of global market has lowered investors’ confidence, and led to questions about the health of the global market. There is a feeling of uncertainty and fears of financial global crises, particularly due to a slowdown in China’s economy.

Many countries around the world, including the Democratic Republic of Congo (DRC) are feeling the impact of the fall in commodity costs, particularly minerals. The drop in the price of copper hit the actual DRC. Glencore, the Anglo-Swiss multinational commodity buying and selling and mining company based in Baar, Switzerland, is considering closing some of its procedures in Katanga province.

Agriculture, mineral resources, manufacturing and services pushes the DRC’s economy. In the last decade, the agricultural sector has been declining as the country’s major contributor to its GDP while commodities-related industries have been increasing. The mining sector makes up about one-quarter of the country’s GDP.

Last year the economy grew through nearly 9%, driven by the extractive as well as manufacturing industries, agriculture, commerce and construction, and a higher export demand for raw material. The dramatic fall in commodity prices threatens this particular growth.

In addition, there are fears of increased political instability as President Joseph Kabila encounters accusations of attempting to remain within power beyond his second and last five-year term.

According towards the IMF, the DRC:

… remains a fragile country with vulnerabilities increasing.

A shaking global economy with local impact

Closing mines in the Katanga province would have a devastating impact, with severe social and economic consequences.

Thousands of workers as well as their families depend on the mining industry. Mine closures would lead to large job losses. The company employs an estimated 5000 people in Katanga without counting subcontractors.

New cities and communities have been established and sustained through mining. Smaller businesses have been created and new forms of commodities trade initiated by people living in areas surrounding the mines.

The impact of exploration houses shrinking their procedures could cripple the DRC’utes economy, which is highly dependent on mineral exports. Up to 87.2% of the economy is export focused.

According to the OECD, the DRC’s exports were worth US$7.03 billion within 2013, making it the 103rd-largest exporter in the world. Refined copper accounted for one-third of exports, followed by copper ore (19%), raw copper (7.5%), cobalt (8.8%), cobalt ore (6.9%), as well as crude petroleum 12%.

The country thus remains extremely vulnerable to commodity prices, or to drops in demand for minerals. The question that needs responding to is how to avoid this permanent economic and social vulnerability?

Diversification is key

Many African countries, including the DRC have, for years maximised and concentrated their economic activities, a minimum of at the macro level, in only one sector.

This lack of economic diversity and extreme concentration on 1 sector has never benefited the actual continent, and will never help the DRC. Diversification is key – not only with regard to GDP, but for local financial development, small businesses and business.

In addition to this, the DRC depends on Foreign Direct Investment (FDI), mainly financial investment, at the expense of nearby capital investment. The country shouldn’t be depending almost exclusively on FDI to run its economy. Rather, they should allow local as well as national companies to invest in proper sectors such as farming, agriculture, transport as well as mining.

The federal government could add other guidelines. These include:

* The DRC should motivate and stimulate local expense and they should support startup businesses. Many of the economic or even financial challenges that the DRC offers known for many years link to financial dependency. It is imperative that the government creates a friendly environment for citizens to invest in their own communities and get all the necessary support to establish and boost their businesses in a safe financial space.

* The country must speed up local economic inclusion through tapping into the potential of the casual market. Women and youth within the informal sector conduct many of small trades. These folks constitute a class of casual entrepreneurs who, if backed financially and with the necessary abilities and logistics, would be able to grow the economy and produce more jobs.

* Strengthen interprovincial economic activities and integration according to small-scale economic activity and trade.

* Think about and promote the role and put of women in local economic development.

It is important to mention that many efforts need deployment to insure sustainability, growth, as well as development of the DRC. Political stability and peace are also crucial for long-lasting economic growth and development.

Why dependence on natural resources is bad for the DRC is republished with permission from The Conversation