## Joint Staff Advisory Note (JSAN) review of the Democratic Republic of the Congo’s second Poverty Reduction and Growth Strategy Paper (PRSP-2) (2011–2015)

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### Overview and strategic orientation
- PRSP-2 covers the years 2011 to 2015 and follows PRSP-1 (2006–10).
- Strategic shift from urgent post-conflict needs toward sustainable development, emphasizing:
  - growth, employment creation, and the impact of climate change;
  - strengthening of good governance;
  - achievement of the MDGs by 2020;
  - elimination of gender-based inequalities.
- PRSP-2 rests on four pillars:
  - (i) the strengthening of governance and the consolidation of peace;
  - (ii) the diversification of the economy to accelerate growth and create employment;
  - (iii) the improvement of access to basic social services as well as the improvement of human capital;
  - (iv) the protection of the environment and actions to reduce the impact of climate change.
- Preparation involved consultations with civil society, public administration, national and international NGOs, and technical and financial partners.
- Government Action Plan (GAP) for 2012–16 focuses on modernizing the state and improving quality of life; government views GAP as an ambitious effort to implement PRSP-2.
- Political context and timing:
  - Presidential and legislative elections of November 28, 2011; President Kabila declared winner and took office on December 20, 2011.
  - Parliament seated on February 16, 2012; government took office on April 28, 2012.
  - Tense security situation during elections returned to normalcy once new government in place; tensions remain in North Kivu after a national arrest warrant for General Bosco Ntaganda.
  - Economic confidence indicators have gradually improved since January 2012.

### Poverty and gender diagnostics — findings and data
- Demographics and population dynamics:
  - Fertility rate: six children per woman of child-bearing age.
  - Population growth rate: 2.7 percent per year.
  - At this rate, the Congolese population is set to double within 25 years.
- Poverty measurement and trends:
  - No new money-metric poverty data available; impossible to measure impact of macroeconomic growth on poverty or inequality directly.
  - PRSP-2 simulations show no significant change in poverty level since 2005.
  - 2005 poverty estimates: 70 percent of the population poor by national classification; 88 percent under PPP US$1.25/day.
  - Proxy social indicators improved: gross primary school enrollment rose from 60 percent (2000) to 94 percent (2010); infant mortality declined from 126 to 97 per 1,000 live births over 2001–10.
  - A new household survey launched on June 2, 2012; money-metric poverty data expected to be updated in early 2013 and reported in PRSP-2’s first progress report.
- MDG status and public financing:
  - DRC is not likely to meet any of the MDGs.
  - National budget covers only 10 percent of health expenditures; households cover almost 50 percent; international community covers some 40 percent.
  - Households contribute some 40 percent to the financial cost of education.
  - Staffs encourage greater transparency on allocation of government resources and household contributions to education expenditures.
- Gender disparities and recommendations:
  - Women face economic, political and security vulnerabilities due to socio-cultural barriers and under-education.
  - PRSP-2 contains an all-encompassing plan to strengthen gender equality; GAP does not prioritize its implementation.
  - Absence of well-defined baselines and specific targets to assess gender improvement over time.
  - Staffs encourage the government to:
    - (i) accelerate gender equality and better address gender issues through law enforcement;
    - (ii) strengthen operational capacities of the Ministry of Gender, Family and Child;
    - (iii) place particular emphasis on increasing employability of women in more skilled jobs.
  - Supplementary gender statistics:
    - Gross school enrollment rates: girls 30.3 percent, boys 53.6 percent, parity index 0.6.
    - Literacy parity index: 0.69 (2001 to 2007).
    - Women employed in non-agricultural sector increased from 21 percent to 34 percent between 2001 and 2007.
    - Percentage of women in national parliament and senate: 8 percent and 5 percent respectively (2010 progress report on the MDGs).
    - Security: 64 percent of women reported experiencing some sort of violence since the age of 15; 49 percent reported some violence within the last 12 months.

### Implementation progress and reform perspectives — macroeconomic performance
- Growth and macro outcomes:
  - Real GDP growth averaged 5.6 percent per year during 2006–10.
  - Medium-term objective was about 7–8 percent, considered necessary to help reach the MDGs.
  - Growth was not sufficiently inclusive to reduce poverty.
- Adverse external and domestic factors during 2006–10:
  - Global financial crisis; volatility in food and fuel prices.
- IMF engagement and fiscal outcomes:
  - Appropriate economic policies supported by an IMF Extended Credit Facility (ECF) arrangement since late 2009 contributed to consolidation of macroeconomic stability.
  - Fiscal consolidation and satisfactory control over public spending anchor the ECF arrangement.
  - Central government revenue increased to 19 percent of GDP in 2010, up from 13 percent of GDP in 2006.
  - Improved fiscal discipline helped lower inflation via lower inflation expectations, maintained relatively high real interest rates, and improved liquidity forecasting at the Central Bank of Congo (BCC).
- Assessment of PRSP-2 macro framework and staff advice:
  - Staffs consider the medium-term macroeconomic framework in PRSP-2 appropriately ambitious.
  - GAP reports substantially higher economic growth projections, creating significant discrepancies between the documents.
  - High real GDP growth may be feasible through scaling up public and private investment in infrastructure, natural resources and agriculture.
  - Staffs advise developing specific policy measures to encourage private investment, including publicly stating realistic projections of government and SOE involvement in key sectors and transparent planning, realization and reporting of annual divestiture and investment programs approved by shareholders.
- Fiscal and structural reform priorities and cautions:
  - High priority: enhancement of governance and transparency in extractive industries.
  - Commendation for accession to the OHADA treaty in July 2012.
  - Recommendations include joining the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, simplifying the tax regime, and reducing administrative red tape.
  - Revenue projections in the GAP are considered difficult to achieve in the short-term; tripling of domestic revenue over the next five years is seen as overly ambitious.
  - Staffs support revenue gains from full VAT implementation, elimination of various tax exemptions, reduction in the number of taxes, and improved natural resource management, but implementation has been slow.
  - Recent non-transparent sales of state-owned mining assets have apparently reduced potential tax revenues.
  - Staffs underscore making government spending plans and infrastructure projects conditional on actual revenue collection to prevent arrears accumulation.
- Debt management:
  - Need to strengthen recording, reporting, and monitoring of debt data and external debt service.
  - Debt unit does not collect information on disbursements in context of the SCCA, undermining data quality and creating arrears risk.
  - Debt unit has been systematically involved in assessing concessionality of new external financing and in negotiating borrowing terms.

### Economic growth and employment-creating sectors — findings and recommendations
- Cross-cutting context:
  - Rapid urbanization, regional integration and improved telecommunications create development opportunities.
  - Agriculture and mining are projected to expand while raising labor productivity and freeing up labor.
  - Urban population expected to reach 40 million by 2025, up from an estimated 24 million in 2012.
  - GAP recognizes recent growth has not resulted in significant employment creation; unemployment statistics:
    - Unemployment rate in urban areas: 17.8 percent.
    - Population share aged 15–35: over 25 percent of the population; urban unemployment for this group: 28 percent.
  - PRSP-2 outlines strategies to promote employment but does not set objectives or targets.
- Agriculture:
  - Staffs agree with authorities’ action plan.
  - Staffs recommend engaging agricultural and rural management councils (CARG) in all territories to ensure public services respond to private needs.
  - Strategic recommendations:
    - target growth through increased productivity for food crops and promotion of agribusiness;
    - give priority to investments over current expenditures to rebuild critical infrastructure needed for productivity growth;
    - promote public-private partnerships to help develop potential value chains.
- Forestry:
  - Government adopted ambitious forestry sector targets as stated in PRSP-2.
  - Measures to fast-track under the Bank-financed Forest and Nature Conservation Project:
    - transition from Bank-financed to self-financed timber tracking system enforced by timber importing countries for better control of illegal logging and improved revenue collection;
    - adoption of community forestry legal texts to empower local communities to manage forests while avoiding overexploitation for commercial purposes.
  - Staffs caution short-term limits to increasing timber exports due to high transport and handling costs; domestic market growth potential exists (e.g., railway sleepers from heavy hardwoods).
  - On fuel-wood and charcoal:
    - Substituting part of charcoal and fuel-wood with alternative energy sources is necessary given deforestation and adverse health implications on women and children from inefficient cook stoves.
    - Rapid substitution will be very challenging and may not be desirable because the wood fuel industry is an important source of income and employment.
    - Short-term strategy recommendation: focus on more sustainable production of charcoal and provision of improved cook stoves.
  - Forestry sector targets in PRSP-2 include:
    - planting of 3 million hectares of forests by 2025;
    - increasing annual forestry sector growth from 3 percent (2007–10) to 5 percent (2012–16);
    - increasing production of logs and semi-processed wood by 10 percent per year during 2012–16.
- Tourism:
  - Rehabilitation of visitor infrastructure in six national parks would be timely.
  - Staffs caution that unless the Congolese Nature Conservation Institute (ICCN) can be thoroughly reformed, it will not be able to manage the Parks effectively nor attract private sector partners to develop ecotourism.
- Mining:
  - Government objective to boost mining output and fiscal contribution requires increase in foreign investment, improvement in business climate, and strengthening of governance.
  - Projected increase in fiscal mining revenues from 9 percent of fiscal revenues in 2010 to 25 percent in 2016 may be possible if mining taxation improves and business environment reforms occur.
  - Recommendations to improve investment protection and governance:
    - accession to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards;
    - implementation of the OHADA legal framework;
    - compliance with the Extractive Industries Transparency Initiative (EITI).
  - Staffs recommend improving transparency in management of mining SOEs, particularly regarding transactions related to mining properties and contracts.
  - Some published contracts did not maximize fiscal revenues; staffs look forward to DRC accession to the EITI and improved SOE management, including transparency on asset sales.
- Oil and gas:
  - Significant oil and gas resources remain largely unexplored; potential important opportunity for development.
  - Current oil exploitation: about 25,000 barrels/day on the western coastal basin.
  - Except for methane reserves dissolved in Lake Kivu, hydrocarbon potential of other sedimentary basins remains to be determined.
  - Geological parallels noted with Ugandan side of Lake Albert where major oil discoveries estimated at several billion barrels have occurred.
  - For petroleum sector to fully contribute to growth and diversification, institutional and policy reforms needed to increase investment and maximize government revenue while protecting biodiversity and environment.
  - Recommended petroleum sector reforms include:
    - reform of the fiscal regime for petroleum activities;
    - implementing regulations for the new hydrocarbon law;
    - developing regulatory framework for allocation of petroleum exploration and production rights;
    - defining a local content policy.

### Manufacturing, services, governance, and state effectiveness
- Manufacturing and services:
  - Manufacturing recovery depends on the refurbishment of infrastructure.
  - PRSP-2 and GAP emphasize large-scale initiatives while giving less attention to smaller-scale but geographically widespread efforts.
  - Growth observed in processing of agricultural products before sale, purification of mining products before export, and preparation of construction materials—many in informal or semi-formal sectors creating employment and income for skilled and semi-skilled workers.
  - Services: opportunities in construction, distribution and trade where peace has been restored.
  - Main constraints to services sector growth identified:
    - (i) a predictable regulatory environment;
    - (ii) financing linked to enforcement of creditor rights;
    - (iii) skill shortages.
- Governance and public sector priorities:
  - Need for a more effective and efficient state to create an enabling environment for private sector job creation.
  - Government emphasis on strengthening political and security institutions welcomed, including:
    - (i) reinforcement of Parliamentary capacity;
    - (ii) promotion of political participation via strengthened media and civil society capacity and independence.
  - Budget process:
    - Budget formulation and execution remain weak; sector budgets often not linked to the national development strategy.
    - Government adopted a strategic plan for public finance reform as outlined in PRSP-2.
    - Staffs recommend promoting citizen participation in the national budget process, drawing on a participatory budget pilot in South Kivu, Katanga and Kinshasa in 2011.
  - Procurement code:
    - New procurement code adopted in April 2010 is far from properly implemented.
    - Staffs recommend strengthening implementation and making the complaints resolution committee operational.
  - Public administration reform:
    - Public administration is overstaffed with unqualified and aged personnel; approximately 60 percent of civil servants have either reached or exceeded the retirement age.
    - PRSP-2 and GAP plans to modernize administration through legal framework, improved human resources management and creation of a retirement system are commended.
  - Decentralization:
    - Decentralization was included in the GAP but left out of the PRSP-2; staffs recommend it remain a top priority.
    - Specific recommendations: finish drafting laws establishing provincial institutions and their relationship with the central government; implement revenue sharing; prepare a local government tax code to limit proliferation of local taxes.
  - Regulatory environment priorities:
    - (i) reducing administrative transaction costs for business start-up;
    - (ii) streamlining building construction licenses and permits;
    - (iii) accelerating legal property transfer processes.
  - Financial sector supervision:
    - Ambitious reform and development program noted; implementation requires significant political commitment.
  - Trade facilitation:
    - Significant improvements since the 2010 Diagnostic Trade Integration Study.
    - Introduction of a single transaction window in Matadi and Kasumbales welcomed in principle.
    - Practical approaches at South Kivu and Katanga border crossings yielded more rapid progress.
    - Staffs’ estimates suggest a similar approach at the Kinshasa-Brazzaville river crossing could yield a 40 percent increase in the volume of trade between the two capitals and over time improve Kinshasa’s access to the Pointe Noire harbor.

### State-Owned Enterprises (SOEs)
- Improving performance of public enterprises that provide essential services and infrastructure is essential to private sector development.
- PRSP-2 commitments commended:
  - (i) circumscribing SOE activities;
  - (ii) upgrading selected SOEs through minimum investment plans;
  - (iii) liberalizing remaining SOE monopolies;
  - (iv) reforming the Ministry of Portfolio.
- Need for due diligence to confirm ownership of strategic infrastructure assets and to agree on restructuring of SOE debts.
- Concern PRSP-2 fails to highlight social liabilities of SOEs (wage arrears, end of service payments and other outstanding liabilities); staffs recommend outlining a strategy to resolve these issues.
- SOE reform will require strong government leadership and focus.

### Infrastructure — constraints, data, and recommended actions
- Infrastructure is critical to growth and diversification: transport, power and communications.
- Infrastructure context facts:
  - Only 1 GW of hydropower is in functioning order.
  - Surface transportation cost is around US$0.16 per ton-kilometer versus US$0.05 per ton kilometer in Southern Africa.
  - Power costs around US$0.24 per kilowatt-hour compared with long-run potential to produce hydro-power at around US$0.04 per kilowatt/hour.
  - DRC has reached a relatively high level of GSM signal coverage at process comparable to that elsewhere in SSA.
- Staffs recommend mobilizing synergies of combined investment in transport, energy and telecommunications sectors to boost private sector investment.
- Recommended projects and actions:
  - Develop the Congo Ocean corridor project focusing on the Kinshasa–Kisangani fluvial segment.
  - Implement an action plan for DRC civil aviation addressing recertification of passenger airlines’ crews and aircraft and signing a multi-year twinning agreement with a qualified foreign Civil Aviation Agency.
- Successful examples cited: energy and ICT corridor between Kinshasa and Lubumbashi; multi-modal river road corridor between Kinshasa and Kisangani.

### Strengthening human capital — education, health, social protection
- Education:
  - PRSP-2 lays out a comprehensive strategic framework aligned with the GAP; basic education (EPSP) strategy appears more advanced than the March 2010 government strategy.
  - PRSP-2 commits to implementing a fee-free schooling policy in primary education to gradually improve equal access.
  - GAP commitment to increase the sector’s budget to 25 percent of GDP in 2016 up from 7 percent in 2011 is commended, but the path to achieving these targets is unclear.
  - Staff recommendations:
    - (i) continue developing a solid and integrated sector strategy;
    - (ii) implement policy measures to improve efficiency and foster accountability;
    - (iii) focus on education outputs such as learning acquisition and skills adequacy;
    - For higher education, advance the quality assurance agenda, possibly via certification by foreign institutions and shift programs toward outcomes that respond to economic development needs.
- Health:
  - PRSP-2 strategic focus on primary health care and demographic issues is commended.
  - Health sector spending declined from US$2 in 2008 to US$1.17 per capita in 2010; the 80 percent vaccination target is the only PRSP-2 target likely to be achieved.
  - Staff recommendations:
    - (i) improve quality of health workers’ education amid proliferation of non-regulated medical and nursing schools;
    - (ii) strengthen drug supply chain management and pharmaceutical quality control;
    - (iii) address inefficient allocation of health care workers and resources across provinces and health zones;
    - Consult well-organized faith-based health organizations and place greater emphasis on decentralization of the HIV/AIDS strategy.
- Social protection:
  - Government commitment to protecting the most vulnerable is commended.
  - Staffs note GAP’s focus on contributory social insurance schemes may not reach the most vulnerable who lack access to such programs.
  - Vulnerable groups explicitly include children and women in conflict-affected regions, people living with disabilities or HIV/AIDS, and displaced persons.

### Environment, climate change, and natural resource management
- PRSP-2 emphasis on managing natural resources and protecting the environment is welcomed.
- Recognition of:
  - (i) adopting and implementing legislation for the new environment framework law established in 2011;
  - (ii) engaging in measures to reduce climate change;
  - (iii) building national resilience to adapt to climate change impacts on agriculture, water resources and vector-borne diseases.
- PRSP-2 highlights DRC participation in REDD and intention to rehabilitate and expand protected areas.
- Staffs note omissions to be addressed:
  - (i) explicit measures to establish a national environmental impact assessment system as required under the new environment framework law;
  - (ii) identification of measures to combat illegal logging;
  - (iii) adoption and implementation of legislation on community forestry essential for REDD participation;
  - (iv) intention to establish a Conservation Trust Fund and implement agreed-upon reforms of the ICCN.
- Staffs recommend renewing commitment to these matters, noting resources have been identified under existing Bank-supported programs.

### Monitoring and Evaluation (M&E)
- PRSP-2’s M&E represents a step forward relative to PRSP-1 with increased institutional focus on line units and more clearly-defined reporting arrangements.
- Results-based approach is welcome but implementation strategy requires further clarification.
- Linking the budget to results could transition to programmatic management of the statistics budget and the National Statistics Institute (INS) budget.
- Concerns and recommendations:
  - The 2009 Kinshasa Agenda called for sector strategies but did not establish M&E frameworks.
  - PRSP-2 contains some 200 indicators but does not clearly link them to existing sector strategies, limiting ability to scale up successful actions and risking redundant data collection.
  - Units such as the National Health Information System and the National Agricultural Statistics Unit may generate needed data, but other units assigned key tasks may require additional financial, human, and institutional capacities.

### Conclusions, risks, and questions for Executive Directors
- Key growth opportunities and high-potential sectors:
  - Abundant natural resources and an underemployed low-cost workforce.
  - High-potential sectors: agro-industry, processed wood from sustainably managed forests, construction materials, mining, and energy.
- Four broad categories of constraints and risks deterring investors:
  - deficient infrastructure;
  - poor governance and complex business regulations;
  - high financing costs;
  - lack of trained workers.
- Implementation lessons from PRSP-1: PRSP-1 failed largely because budget execution was poorly aligned with PRSP objectives.
- Preconditions for effective implementation:
  - Allocation of DRC’s own resources consistent with PRSP-2 priorities to mobilize development partner support.
  - Limit state role to providing public goods, pursue SOE reform to establish good governance and service delivery.
  - Explicitly prioritize inclusion of youth and women in job creation and economic development.
- Questions for Executive Directors include:
  - The areas identified by staffs as priorities for strengthening the PRSP and its implementation.
  - The areas identified as key implementation risks.

*Source: Joint Staff Advisory Note (JSAN) on the Democratic Republic of the Congo’s PRSP-2 (2011–2015).*

### 1. This Joint Staff Advisory Note (JSAN) reviews the Democratic Republic of the

### Joint Staff Advisory Note (JSAN) review of the Democratic Republic of the Congo’s second Poverty Reduction and Growth Strategy Paper (PRSP-2) (2011–2015)

### Overview and strategic orientation
- PRSP-2 covers the years 2011 to 2015 and follows PRSP-1 (2006–10).
- PRSP-1 was the DRC’s first comprehensive national development plan since the end of civil war in 2003 and focused on urgent reconstruction and improving living conditions.
- PRSP-2 shifts focus from urgent post-conflict needs toward sustainable development, emphasizing:
  - growth, employment creation, and the impact of climate change;
  - strengthening of good governance;
  - achievement of the MDGs by 2020;
  - elimination of gender-based inequalities.
- PRSP-2 rests on four pillars:
  - (i) the strengthening of governance and the consolidation of peace;
  - (ii) the diversification of the economy to accelerate growth and create employment;
  - (iii) the improvement of access to basic social services as well as the improvement of human capital;
  - (iv) the protection of the environment and actions to reduce the impact of climate change.
- Preparation involved consultations with civil society, public administration, national and international NGOs, and technical and financial partners.
- The Government Action Plan (GAP) for 2012–16 focuses on modernizing the state and improving quality of life; the government views the GAP as an ambitious effort to implement PRSP-2.
- Political context:
  - Presidential and legislative elections of November 28, 2011, were credibility-challenged; President Kabila declared winner and took office on December 20, 2011.
  - Parliament seated on February 16, 2012; government took office on April 28, 2012.
  - Tense security situation during elections returned to normalcy once new government in place; tensions remain in North Kivu after a national arrest warrant for General Bosco Ntaganda.
  - Economic confidence indicators have gradually improved since January 2012.

### Poverty and gender diagnostics
- Demographics:
  - Fertility rate: six children per woman of child-bearing age.
  - Population growth rate: 2.7 percent per year.
  - At this rate, the Congolese population is set to double within 25 years.
- Poverty measurement and trends:
  - No new money-metric poverty data available; impossible to measure impact of macroeconomic growth on poverty or inequality directly.
  - PRSP-2 simulations show no significant change in poverty level since 2005.
  - 2005 poverty estimates: 70 percent of the population poor by national classification; 88 percent under PPP US$1.25/day.
  - Proxy social indicators improved: gross primary school enrollment rose from 60 percent (2000) to 94 percent (2010); infant mortality declined from 126 to 97 per 1,000 live births over 2001–10.
  - A new household survey launched on June 2, 2012; money-metric poverty data expected to be updated in early 2013 and reported in PRSP-2’s first progress report.
- Millennium Development Goals (MDGs):
  - DRC is not likely to meet any of the MDGs.
  - National budget covers only 10 percent of health expenditures; households cover almost 50 percent; international community covers some 40 percent.
  - Households contribute some 40 percent to the financial cost of education.
  - Staffs encourage greater transparency on allocation of government resources and household contributions to education expenditures.
- Gender disparities:
  - Women face economic, political and security vulnerabilities due to socio-cultural barriers and under-education.
  - PRSP-2 contains an all-encompassing plan to strengthen gender equality; GAP does not prioritize its implementation.
  - Absence of well-defined baselines and specific targets to assess gender improvement over time.
  - Staffs encourage the government to:
    - (i) accelerate gender equality and better address gender issues through law enforcement;
    - (ii) strengthen operational capacities of the Ministry of Gender, Family and Child;
    - (iii) place particular emphasis on increasing employability of women in more skilled jobs.
  - Supplementary gender statistics (from PRSP progress report and progress note):
    - Gross school enrollment rates: girls 30.3 percent, boys 53.6 percent, parity index 0.6.
    - Literacy parity index: 0.69 (2001 to 2007).
    - Women employed in non-agricultural sector increased from 21 percent to 34 percent between 2001 and 2007.
    - Percentage of women in national parliament and senate: 8 percent and 5 percent respectively (2010 progress report on the MDGs).
    - Security: 64 percent of women reported experiencing some sort of violence since the age of 15; 49 percent reported some violence within the last 12 months.

### Implementation progress and reform perspectives

#### A. Macroeconomic performance
- Growth and macroeconomic outcomes:
  - Real GDP growth averaged 5.6 percent per year during 2006–10.
  - Medium-term objective was about 7–8 percent, considered necessary to help reach the MDGs.
  - Growth was not sufficiently inclusive to reduce poverty.
- Adverse factors during 2006–10:
  - Global financial crisis causing sharp deterioration in terms of trade and external outlook.
  - Volatility in food and fuel prices negatively affected poverty.
- Macroeconomic policy and IMF engagement:
  - Appropriate economic policies supported by an IMF Extended Credit Facility (ECF) arrangement since late 2009 contributed to consolidation of macroeconomic stability.
  - Fiscal consolidation and satisfactory control over public spending anchor the ECF arrangement.
  - Central government revenue increased to 19 percent of GDP in 2010, up from 13 percent of GDP in 2006.
  - Improved fiscal discipline helped lower inflation via lower inflation expectations, maintained relatively high real interest rates, and improved liquidity forecasting at the Central Bank of Congo (BCC).
- Assessment of PRSP-2 macro framework:
  - Staffs consider the medium-term macroeconomic framework in PRSP-2 appropriately ambitious.
  - GAP reports substantially higher economic growth projections, creating significant discrepancies between the documents.
  - High real GDP growth may be feasible through scaling up public and private investment in infrastructure, natural resources and agriculture.
  - Staffs advise developing specific policy measures to encourage private investment, including publicly stating realistic projections of government and SOE involvement in key sectors and transparent planning, realization and reporting of annual divestiture and investment programs approved by shareholders.
- Fiscal and structural reform priorities and cautions:
  - High priority for enhancement of governance and transparency in extractive industries.
  - Commendation for accession to the OHADA treaty in July 2012.
  - Recommendations include joining the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, simplifying the tax regime, and reducing administrative red tape.
  - Revenue projections in the GAP are considered difficult to achieve in the short-term; tripling of domestic revenue over the next five years is seen as overly ambitious.
  - Staffs support revenue gains from full VAT implementation, elimination of various tax exemptions, reduction in the number of taxes, and improved natural resource management, but implementation has been slow.
  - Recent non-transparent sales of state-owned mining assets have apparently reduced potential tax revenues.
  - Staffs underscore making government spending plans and infrastructure projects conditional on actual revenue collection to prevent arrears accumulation.
- Debt management:
  - Need to strengthen recording, reporting, and monitoring of debt data and external debt service.
  - Debt unit does not collect information on disbursements in context of the SCCA, undermining data quality and creating arrears risk.
  - Debt unit has been systematically involved in assessing concessionality of new external financing and in negotiating borrowing terms.

#### B. Economic growth and employment-creating sectors
- Context and cross-cutting observations:
  - Rapid urbanization, regional integration and improved telecommunications create development opportunities.
  - Agriculture and mining are projected to expand while raising labor productivity and freeing up labor.
  - Urban population expected to reach 40 million by 2025, up from an estimated 24 million in 2012.
  - GAP recognizes recent growth has not resulted in significant employment creation; unemployment statistics:
    - Unemployment rate in urban areas: 17.8 percent.
    - Population share aged 15–35: over 25 percent of the population; urban unemployment for this group: 28 percent.
  - PRSP-2 outlines strategies to promote employment but does not set objectives or targets.
- Agriculture:
  - Staffs agree with authorities’ action plan.
  - Staffs recommend engaging agricultural and rural management councils (CARG) in all territories to ensure public services respond to private needs.
  - Strategic recommendations:
    - target growth through increased productivity for food crops and promotion of agribusiness;
    - give priority to investments over current expenditures to rebuild critical infrastructure needed for productivity growth;
    - promote public-private partnerships to help develop potential value chains.
- Forestry:
  - Government adopted ambitious forestry sector targets (as stated in PRSP-2).
  - Staffs note measures to fast-track under the Bank-financed Forest and Nature Conservation Project:
    - transition from Bank-financed to self-financed timber tracking system enforced by timber importing countries for better control of illegal logging and improved revenue collection;
    - adoption of community forestry legal texts to empower local communities to manage forests while avoiding overexploitation for commercial purposes.
  - Staffs caution short-term limits to increasing timber exports due to high transport and handling costs; domestic market growth potential exists (e.g., railway sleepers from heavy hardwoods).
  - On fuel-wood and charcoal:
    - Substituting part of charcoal and fuel-wood with alternative energy sources is necessary given deforestation and adverse health implications on women and children from inefficient cook stoves.
    - Rapid substitution will be very challenging and may not be desirable because the wood fuel industry is an important source of income and employment.
    - Short-term strategy recommendation: focus on more sustainable production of charcoal and provision of improved cook stoves.
  - Forestry sector targets noted in PRSP-2 include:
    - planting of 3 million hectares of forests by 2025;
    - increasing annual forestry sector growth from 3 percent (2007–10) to 5 percent (2012–16);
    - increasing production of logs and semi-processed wood by 10 percent per year during 2012–16.
- Tourism:
  - Rehabilitation of visitor infrastructure in six national parks would be timely.
  - Staffs caution that unless the Congolese Nature Conservation Institute (ICCN) can be thoroughly reformed, it will not be able to manage the Parks effectively nor attract private sector partners to develop ecotourism.
- Mining:
  - Government objective to boost mining output and fiscal contribution requires increase in foreign investment, improvement in business climate, and strengthening of governance.
  - Projected increase in fiscal mining revenues from 9 percent of fiscal revenues in 2010 to 25 percent in 2016 may be possible if mining taxation improves and business environment reforms occur.
  - Recommendations to improve investment protection and governance:
    - accession to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards;
    - implementation of the OHADA legal framework;
    - compliance with the Extractive Industries Transparency Initiative (EITI).
  - Staffs recommend improving transparency in management of mining SOEs, particularly regarding transactions related to mining properties and contracts.
  - Some published contracts did not maximize fiscal revenues; staffs look forward to DRC accession to the EITI and improved SOE management, including transparency on asset sales.
- Oil and gas:
  - Significant oil and gas resources remain largely unexplored; potential important opportunity for development.
  - Current oil exploitation: about 25,000 barrels/day on the western coastal basin.
  - Except for methane reserves dissolved in Lake Kivu, hydrocarbon potential of other sedimentary basins remains to be determined.
  - Geological parallels noted with Ugandan side of Lake Albert where major oil discoveries estimated at several billion barrels have occurred.
  - For petroleum sector to fully contribute to growth and diversification, institutional and policy reforms needed to increase investment and maximize government revenue while protecting biodiversity and environment.
  - Recommended petroleum sector reforms include:
    - reform of the fiscal regime for petroleum activities;
    - implementing regulations for the new hydrocarbon law;
    - developing regulatory framework for allocation of petroleum exploration and production rights;
    - defining a local content policy.

*Source: Joint Staff Advisory Note (JSAN) on the Democratic Republic of the Congo’s PRSP-2 (2011–2015).*

### 22. Manufacturing: Staffs note that the PRSP-2 rightly observes that the recovery of the

### 22. Manufacturing: Staffs note that the PRSP-2 rightly observes that the recovery of the

### Manufacturing and Services
- Manufacturing recovery depends on the refurbishment of infrastructure.
- Staffs caution that the PRSP-2 and the GAP emphasize large-scale initiatives while giving less attention to smaller-scale but geographically widespread efforts.
- Growth observed in activities such as processing of agricultural products before sale, purification of mining products before export, and preparation of construction materials—many occurring in informal or semi-formal sectors and creating employment and income for skilled and semi-skilled workers.
- Services: opportunities for growth in construction, distribution and trade exist, particularly in areas where peace has been restored.
- Main constraints to services sector growth identified:
  - (i) a predictable regulatory environment;
  - (ii) financing linked to enforcement of creditor rights;
  - (iii) skill shortages.

### Governance and State Effectiveness
- Need for a more effective and efficient state to create an enabling environment for private sector job creation.
- Government emphasis welcomed on strengthening political and security institutions through:
  - (i) reinforcement of Parliamentary capacity;
  - (ii) promotion of political participation via strengthened media and civil society capacity and independence.
- Public sector priorities and staff observations/recommendations:
  - Budget process:
    - Budget formulation and execution remain weak; sector budgets often not linked to the national development strategy.
    - Government adopted a strategic plan for public finance reform as outlined in the PRSP-2.
    - Staffs recommend promoting citizen participation in the national budget process, drawing on a participatory budget pilot in South Kivu, Katanga and Kinshasa in 2011.
  - Procurement code:
    - New procurement code adopted in April 2010 is far from properly implemented.
    - Staffs recommend strengthening implementation and making the complaints resolution committee operational.
  - Public administration reform:
    - Public administration is overstaffed with unqualified and aged personnel; approximately 60 percent of civil servants have either reached or exceeded the retirement age.
    - PRSP-2 and GAP plans to modernize administration through legal framework, improved human resources management and creation of a retirement system are commended.
  - Decentralization:
    - Decentralization was included in the GAP but left out of the PRSP-2; staffs recommend it remain a top priority.
    - Specific recommendations: finish drafting laws establishing provincial institutions and their relationship with the central government; implement revenue sharing; prepare a local government tax code to limit proliferation of local taxes.
  - Regulatory environment:
    - Advise prioritizing: (i) reducing administrative transaction costs for business start-up; (ii) streamlining building construction licenses and permits; (iii) accelerating legal property transfer processes.
  - Financial sector supervision:
    - Ambitious reform and development program noted; implementation requires significant political commitment.
  - Trade policy and practices:
    - Significant improvements in trade facilitation since the 2010 Diagnostic Trade Integration Study.
    - Introduction of a single transaction window in Matadi and Kasumbales welcomed in principle.
    - Practical, collaborative approaches at South Kivu and Katanga border crossings yielded more rapid progress.
    - Staffs’ estimates suggest that a similar practical approach at the Kinshasa-Brazzaville river crossing could yield a 40 percent increase in the volume of trade between the two capitals and over time improve Kinshasa’s access to the Pointe Noire harbor.

### State-Owned Enterprises (SOEs)
- Improving performance of public enterprises that provide essential services and infrastructure is essential to private sector development.
- PRSP-2 commitments commended: (i) circumscribing SOE activities; (ii) upgrading selected SOEs through minimum investment plans; (iii) liberalizing remaining SOE monopolies; (iv) reforming the Ministry of Portfolio.
- Need for due diligence to confirm ownership of strategic infrastructure assets and to agree on restructuring of SOE debts.
- Concern that PRSP-2 fails to highlight social liabilities of SOEs (wage arrears, end of service payments and other outstanding liabilities); staffs recommend outlining a strategy to resolve these issues.
- SOE reform will require strong government leadership and focus.

### Infrastructure
- Growth and diversification depend on strengthening basic infrastructure: transport, power and communications.
- PRSP-2 recognizes link between renewed investment in transport, energy and ICT sectors and economic diversification and private sector development.
- Infrastructure context (as noted in the source):
  - Only 1 GW of hydropower is in functioning order.
  - Surface transportation cost is around US$0.16 per ton-kilometer versus US$0.05 per ton kilometer in Southern Africa.
  - Power costs around US$0.24 per kilowatt-hour compared with long-run potential to produce hydro-power at around US$0.04 per kilowatt/hour.
  - DRC has reached a relatively high level of GSM signal coverage at process comparable to that elsewhere in SSA.
- Staffs recommend mobilizing synergies of combined investment in transport, energy and telecommunications sectors to boost private sector investment.
- Recommended projects and actions:
  - Develop the Congo Ocean corridor project focusing on the Kinshasa–Kisangani fluvial segment.
  - Implement an action plan for DRC civil aviation addressing recertification of passenger airlines’ crews and aircraft and signing a multi-year twinning agreement with a qualified foreign Civil Aviation Agency.
- Successful examples cited: energy and ICT corridor between Kinshasa and Lubumbashi; multi-modal river road corridor between Kinshasa and Kisangani.

### Strengthening Human Capital
- Education:
  - PRSP-2 lays out a comprehensive strategic framework aligned with the GAP; basic education (EPSP) strategy appears more advanced than the March 2010 government strategy.
  - PRSP-2 commits to implementing a fee-free schooling policy in primary education to gradually improve equal access.
  - Higher education: emphasis on sector governance and external efficiency, but policy options remain broad and should address specific issues such as school dropout rates.
  - GAP commitment to increase the sector’s budget to 25 percent of GDP in 2016 up from 7 percent in 2011 is commended, but the path to achieving these targets is unclear.
  - Staff recommendations:
    - (i) continue developing a solid and integrated sector strategy;
    - (ii) implement policy measures to improve efficiency and foster accountability;
    - (iii) focus on education outputs such as learning acquisition and skills adequacy;
    - For higher education, advance the quality assurance agenda, possibly via certification by foreign institutions and shift programs toward outcomes that respond to economic development needs.
- Health:
  - PRSP-2 strategic focus on primary health care and demographic issues is commended.
  - Health sector spending declined from US$2 in 2008 to US$1.17 per capita in 2010; the 80 percent vaccination target is the only PRSP-2 target likely to be achieved.
  - Staff recommendations:
    - (i) improve quality of health workers’ education amid proliferation of non-regulated medical and nursing schools;
    - (ii) strengthen drug supply chain management and pharmaceutical quality control;
    - (iii) address inefficient allocation of health care workers and resources across provinces and health zones;
    - Consult well-organized faith-based health organizations and place greater emphasis on decentralization of the HIV/AIDS strategy.
- Social protection:
  - Government commitment to protecting the most vulnerable is commended.
  - Staffs note GAP’s focus on contributory social insurance schemes may not reach the most vulnerable who lack access to such programs.
  - Vulnerable groups explicitly include children and women in conflict-affected regions, people living with disabilities or HIV/AIDS, and displaced persons.

### Protection of the Environment and Climate Change Issues
- PRSP-2 emphasis on managing natural resources and protecting the environment is welcomed.
- Recognition of: (i) adopting and implementing legislation for the new environment framework law established in 2011; (ii) engaging in measures to reduce climate change; (iii) building national resilience to adapt to climate change impacts on agriculture, water resources and vector-borne diseases.
- PRSP-2 highlights DRC participation in REDD and intention to rehabilitate and expand protected areas.
- Staffs note omissions that should be addressed:
  - (i) explicit measures to establish a national environmental impact assessment system as required under the new environment framework law;
  - (ii) identification of measures to combat illegal logging;
  - (iii) adoption and implementation of legislation on community forestry essential for REDD participation;
  - (iv) intention to establish a Conservation Trust Fund and implement agreed-upon reforms of the ICCN.
- Staffs recommend renewing commitment to these matters, noting resources have been identified under existing Bank-supported programs.

### Monitoring and Evaluation (M&E)
- PRSP-2’s M&E represents a step forward relative to PRSP-1 with increased institutional focus on line units and more clearly-defined reporting arrangements.
- Results-based approach is welcome but implementation strategy requires further clarification.
- Linking the budget to results could transition to programmatic management of the statistics budget and the National Statistics Institute (INS) budget.
- Concerns and recommendations:
  - The 2009 Kinshasa Agenda called for sector strategies but did not establish M&E frameworks.
  - PRSP-2 contains some 200 indicators but does not clearly link them to existing sector strategies, limiting ability to scale up successful actions and risking redundant data collection.
  - Units such as the National Health Information System and the National Agricultural Statistics Unit may generate needed data, but other units assigned key tasks may require additional financial, human, and institutional capacities.

### Conclusions and Issues for Discussion
- DRC has significant growth opportunities due to abundant natural resources and an underemployed low-cost workforce.
- Key high-potential sectors: agro-industry, processed wood from sustainably managed forests, construction materials, mining, and energy.
- Four broad categories of constraints and risks deterring investors: deficient infrastructure, poor governance and complex business regulations, high financing costs, and a lack of trained workers.
- Implementation lessons from PRSP-1: PRSP-1 failed largely because budget execution was poorly aligned with PRSP objectives.
- Allocation of DRC’s own resources consistent with PRSP-2 priorities is a precondition for effective implementation and to mobilize development partner support.
- Staffs emphasize: limit state role to providing public goods, pursue SOE reform to establish good governance and service delivery, and explicitly prioritize inclusion of youth and women in job creation and economic development.
- Questions for Executive Directors include:
  - The areas identified by staffs as priorities for strengthening the PRSP and its implementation.
  - The areas identified as key implementation risks.

*IMF staff summary of PRSP-2 chapter on manufacturing, services, governance, infrastructure, human capital, environment, M&E, and conclusions.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13225.pdf_