2009 Index of Economic Freedom

Quick Facts

Population:

• 60.6 million

GDP (PPP):

• $17.0 billion
• 5.6% growth
• 5.9% 5-year compound annual growth
• $281 per capita

Unemployment:

• 8.9%

Inflation (CPI):

• 16.7%

FDI Inflow:

• $180.0 million

The 2009 Index resumes assessing the economic freedom of the Democratic Republic of Congo (DRC) in light of the availability of better data. The last several editions of the Index provided only basic information on the DRC without numerically scoring the country's economic freedom. In the 2009 Index, the DRC's economic freedom score is 42.8, making its economy the world's 173rd freest, ahead of only six countries at the bottom of the rankings.

The DRC has slowly been emerging from a long period of political instability and violence. Poor economic management, exacerbated by repeated political crises, has severely hindered the country's economic development and has constrained economic freedom to the least free level.

The DRC scores relatively well in fiscal freedom and government size, but much economic activity is shackled by weak institutional capacity that fails to support the sustainable development of a dynamic private sector. Because tax laws are enforced arbitrarily, many people and enterprises have moved to the informal sector, which accounts for more than 80 percent of economic activity.

Background Back to the top

Strongman Laurent Kabila overthrew long-time dictator Mobutu Sese Seko in 1997 and was himself assassinated in 2001. His son Joseph assumed power and in 2006 won the DRC's first multi-party elections in 40 years. Despite a tenuous peace since 2003, the government has virtually no control over large parts of the DRC, particularly in the East where rebel groups remain active. The Democratic Republic of Congo's immense natural resources, including copper, cobalt, and diamonds, seem to have fueled conflict as much as development. Agriculture accounts for over half of GDP. Years of corruption and mismanagement have driven much economic activity into the informal sector. Infrastructure is virtually nonexistent in many areas.

Business Freedom 34.3 Back to the top

The overall freedom to start, operate, and close a business is restricted by the Democratic Republic of Congo's regulatory environment. Starting a business takes an average of 155 days, compared to the world average of 38 days. Obtaining a business license takes about 322 days and involves 14 procedures, compared to the world average of 225 days and 18 procedures.

Trade Freedom 62.2 Back to the top

The weighted average tariff rate was 11.4 percent in 2006. Inadequate and inefficient infrastructure, complex regulations, burdensome and complex bureaucracy, inefficient customs administration, and corruption add to the cost of trade, and there is substantial unrecorded trade. Fifteen points were deducted from the Democratic Republic of Congo's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 73.3 Back to the top

The Democratic Republic of Congo has a moderate income tax rate and a high corporate tax rate. The top income tax rate is 30 percent, and the top corporate tax rate is 40 percent. Other taxes include a sales tax and a tax on vehicles. In the most recent year, overall tax revenue as a percentage of GDP was 13.2 percent.

Government Size 85.3 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending, which has been increasing for five years, equaled 22.1 percent of GDP. Budget management is weak. The national water supply and electric companies are prime targets for privatization.

Monetary Freedom59.5 Back to the top

Inflation is very high, averaging 16.3 percent between 2005 and 2007. Despite important structural reforms, including the liberalization of most prices, some prices are still controlled through the public sector. Import price controls can be significant because nearly all manufactured goods and many food items are imported. Fifteen points were deducted from the Democratic Republic of Congo's monetary freedom score to adjust for price-control measures.

Investment Freedom30.0 Back to the top

Investment regulations, both officially and in practice, do not discriminate against foreign investors, except in some cases dealing with labor and related taxes. No formal limits or screening mechanisms are imposed on foreign ownership of busi-nesses. The granting of permits and licenses in lucrative sectors often suffers from arbitrariness, lack of transparency, and corruption. All businesses face multiple, burdensome, and sometimes extralegal taxation. Implementing transparent and consistent regulation remains a challenge. International transfers of funds take place freely when transacted through a local commercial bank.

Financial Freedom20.0 Back to the top

The financial system is severely hampered by war, political instability, and unpredictable monetary policy. Commercial banks dominate the financial sector, but their assets account for only about 10 percent of GDP. The government retains shares in two of the 11 commercial banks. Access to financing for entrepreneurial activity remains poor as the country has one of the world's lowest bank penetration rates. Financial intermediation of the banking sector is minimal and very limited. Credit to the private sector accounts for less than 3 percent of GDP. Most banks act as financial agents for the government or extend credit to international institutions operating in the country. As much as 70 percent of the currency is in U.S. dollars and outside the banking system. Larger banks are mostly subsidiaries of foreign banks. Supervision is very poor, and most banks fail to meet basic prudential standards. Most credit is informal. There is no stock exchange.

Property Rights10.0 Back to the top

Private property is not secure. Local conflicts are common, and fighting, banditry, and abuses of human rights threaten property rights and deter economic activity. Courts suffer from widespread corruption, public administration is unreliable, and expatriates and nationals are subject to selective application of a complex legal code. Although there is greater political stability now that six years of conflict have subsided with the help of international peacekeepers, government authority is challenged in some eastern areas dominated by armed groups.

Freedom From Corruption19.0 Back to the top

Corruption is perceived as rampant. The Democratic Republic of Congo ranks 168th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption and government policies have given rise to a parallel economy.

Labor Freedom34.5 Back to the top

Formal-sector employment is negligible. The formal labor market operates under highly restrictive employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee is costly. Enforcement of existing laws is often inconsistent.