DRC: The Origins of the informal sector

By on August 18, 2010
DRC: The Origins of the informal sector In the Democratic Republic of Congo (DRC), the informal sector represents over 80% of the economy. Therefore, it constitutes an obstacle to faster development and a factor reducing the tax base, thereby minimizing infrastructure spending that the country needs.

While some want to seriously reduce it or to delete it, the real problem is primarily to determine its origin.

B. Lautier stressed that “informality does not mean the absence of state, but the State is often the genesis and the grantor”. “If the formal is too expensive, it is normal that people do not use it. However, if the formal is imposed as a single solution, and even it is too expensive for most people, there can be no informality”. The DRC does not derogate in any way to this rule.

The global downturn of the 70s has led to a marked worsening terms of trade, fuelled by higher export prices and very low prices of raw materials.

Another blow to this economy will be raised by the exclusive reservation of all trade activities to the indigenous peoples, the nationalisation of agribusiness companies and state control of all key economic sectors hitherto left to private. Thus, the formal sector is significantly reduced. Between 1980 and 2000, domestic production has fallen by 69%, the state revenues by 81% and exports by 67%. The revenue-raising capacity of the state which was already low in 1980 (8% of GDP) had fallen to 5% in 2000, and the employees’ income decreased from 1572.5 dollars in 1973 to $ 28 in 1998.  The collapse of the formal sector was inevitably offset by the development of the informal sector. As a consequence, unemployment is estimated at over 90 % of the work force today.

Doing Business 2010 has ranked the DRC to the 182nd position on 183 in terms of the country’s readiness and environment of doing business. To create a business takes 149 days, going through 13 different procedures, while in the neighbouring Rwanda, it only takes three days.

In sum, the Congolese government appears to be the expansion machine of the informal sector. And the only option available is to improve its institutions: the state must work towards efficiency and reducing bureaucracy.

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