This is the Democratic Republic of the Congo. One of, if not, the single poorest country in the world by multiple economic measurements. The country has a GDP per capita of just $584, which means that the average person living in the country is producing less than $2 worth of wealth every single day, and they are living on even less than that. This number is less than 6% of the global average, and less than 1% of some advanced economies like the United States. At this level of poverty, GDP figures really start to lose their meaning, as people revert to just making stuff for themselves rather than contributing to the wider economy.
If you don't understand why that's important right now, don't worry, we'll cover it in detail very soon. Either way, the truly unfortunate thing about the DRC's economy is that it does not need to be poor at all. It is one of the most materially rich countries in the world, with vast reserves of a range of natural resources. If the country was able to efficiently extract these resources, it would generate $24 trillion in revenue at current market prices. That is enough, just by itself, with no other industries involved at all, to bring the living standards of the average Congolese citizen up to world standards for two and a half decades, assuming that nothing gets reinvested and no other industries are allowed to grow, which of course are very silly assumptions. Making more reasonable predictions that a lot of this money would be recirculated through the economy and also build up other supporting industries, the DRC would not only be one of the wealthier countries in Africa, it would be one of the wealthiest countries in the world.
Now the story of a country plagued by corruption, war and economic mismanagement is unfortunately nothing new by itself. In fact, one of the very first videos on this channel was about the Democratic Republic of the Congo, and how it's lack of stability meant that international institutions had little confidence to make the investments the country needed to get off the ground. Stability and confidence in an economy is something that we have gone on to mention in almost every national economy video since, but the DRC is worth exploring again, not only because of its massive lost potential, but also because of what that natural resource wealth is made up of. There is the usual stuff like gemstones, metal laws and even petroleum, but it's also home to significant quantities of the planet's reserves of coal-tanned, cobalt and lithium, essential components in energy storage devices and electronics. The adoption of electric cars and the rise of battery energy storage means that the demand for these materials is expected to outstrip global supply this year, and unless the reserves of the DRC can be productively brought online, the growth of these industries will be forced to halt.
So, what is stopping the Democratic Republic of the Congo from being able to take advantage of its natural wealth? What can the global community do to get rid of these barriers? And finally, are there any reasons to be hopeful about DRC's economic future? Once we have done all of that, we can put the Democratic Republic of the Congo, one of the poorest nations in the world, on the economics explained National Leaderboard.
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The economy of the Democratic Republic of the Congo, as it exists today, started in 1960, when a country gained independence from Belgium after a truly horrific period of being exploited for its farmland, precious stones and human labour.
This was undoubtedly a positive step for the country and its people, but it was handled very poorly. At the time of its independence, the DRC had a population of around 20 million people, of which only 16 were university graduates. Not 16%, 16 people total.
The Belgian officials that were in charge of the country's industries basically left overnight and left very few instructions on how to manage the institutions that would keep the economy going, before independence just three government jobs were held by Congolese people.
The country obviously almost immediately fell into economic chaos as civil systems collapsed and the country stopped exporting anything to maintain its international income. The economic chaos led to fighting between the different political and ethnic groups within the country, which only further hampered any chance it had to improve living standards for its citizens.
This drawn out period of political upheaval was known as the Congo crisis, and the fighting was indirectly supported by both the United States and the Soviet Union, which used the country as a proxy battlefield to fight out their political differences, using the lives of other people.
By 1965, following a political stalemate, watched elections and a military coup, the US back President Mboutu emerged as the country's sole leader, and to almost nobody's surprise, turned the country into a military dictatorship almost immediately.
The political tensions and divisions still existed in the country, so really the only hope that the government had to hold onto power was through the threat of military violence. The problem this created beyond just the immediate human suffering caused by ongoing conflicts and the daily struggles of living under a dictatorship, was that it stopped the country from being able to attract the investment it needed to develop its economy.
There are a lot of international companies that would have loved to set up operations in the Democratic Republic of the Congo, or Zaire as it was called between the years of 1971 and 1997. Even if these companies were only there to harvest the natural resource wealth of the region, effective governance of these operations can still produce a lot of wealth for all of the participants.
Advanced economies like Norway, Canada, the UK, the USA and Australia all generate a lot of wealth from natural resource extraction that is produced by private enterprise. The difference is that these countries will negotiate resource deals with these companies in exchange for some level of compensation that does go on to benefit the people who are ultimately the decision makers in that country through their right to vote in free and open elections.
In dictatorships, the compensation only needs to benefit the dictators, but even in situations like this, the international companies involved need some level of stability before they can set up their operations. Bribing government officials for mining rights in African countries is nothing new, but the company still needs to make other significant investments before they can access the resources profitably.
Investing billions of dollars into mining equipment, processing facilities and shipping ports to get materials out of the country, can pay itself off very quickly, as long as that infrastructure doesn't get caught up in a nationalisation campaign or ongoing conflicts. Since these events are commonplace in the DRC, the country has struggled consistently throughout its history to attract foreign investment, even from companies that just want to exploit its natural resources.
This means that it hasn't been able to build out any type of industry, which means that even mining is mostly done by hand with very rudimentary tools, which means each individual worker is producing very little value, so even if the economy was perfectly fair, they wouldn't be paid very much. When we compare the minds of the DRC to the minds extracting similar materials in advanced economies, there is far less equipment being utilized, which needs to be made up for with more low-cost manpower.
This is normally where the International Monetary Fund and the World Bank would intervene. These organisations operate to give loans to underdeveloped or otherwise struggling economies so that they can make the initial investments that they need to build out some kind of productive industry.
In theory, the IMF could loan money to the DRC's so that they could build out some roads and buy some equipment to start efficiently harvesting the vast resource wealth they sit on top of. Given that revenue, they could pay back those loans and make further investments into more tools for extract even more resources and generate even more revenue, win-win if everything went perfectly. With some version of this plan in mind, the IMF and the World Bank have both loaned the DRC billions of dollars over the past five decades, but a lot of that money has just end up getting mismanaged or embezzled by corrupt government officials. Both of these institutions have had to write off most of these loans, and eventually even the IMF, which was created specifically to help out countries like this, said that enough was enough.
They also sent out economic advisors to try and help build out a coherent plan for the country, but have struggled to overcome a pervasive challenge. A lot of the leaders that have ruled the country since its independence don't want their people to be well off, because wealthier people are harder to control, and with the country's fractional rivalries holding on to power is hard enough as it is, without the general population asking too many questions about how their government is run. It's an endless feedback loop and a problem that is almost impossible to solve without undue foreign intervention in a sovereign country's politics, which is a solution that hasn't had a great track record in the past.
It's also important to remember that what might just sound like a geopolitical and economic problem to us has some very real human consequences. The level of poverty in countries like the DRC can be hard for economists from advanced countries to understand. Economists are educated professionals that are normally relatively wealthy in sight of countries that are very wealthy by global standards. Knowing that the Democratic Republic of the Congo has a GDP per capita of $584 or that the average citizen lives on less than $2 a day is technically accurate, but it doesn't give anybody a real understanding of the conditions or the financial realities of the people living in these countries.
GDP is a measure of the total market output of an economy, so it shouldn't theory be the total value of all final goods generated in that economy in a year. There are however some things that an economy will produce that are not included in total GDP figures. This will exclude non-final goods from the value of GDP, because otherwise we'll end up counting things many times over, giving us an over-inflated sense of what the economy is actually worth. A non-final good is something like an engine that will end up going into a new car. If the car maker buys an engine for $5,000 to put into a car that they will sell for $25,000, only that $25,000 will be counted towards GDP.
Another thing that doesn't get included in GDP figures are illegal goods and services. Now technically these goods should be included because they are value-adding products. The only reason they don't get included is because obviously people engaged in illegal activities are not going to report their earnings to the government organisation responsible for collecting economic data. Finally, the category that gets left out of GDP figures that is important to undeveloped economies like the DRC are so-called household industries engaged in household production. Household production is something like gay woodworking and teazious, making a dining room set for their family. It technically added value, but it wouldn't get counted in GDP figures because it wasn't supplied to the market. If that would work a sold dining room set, then it would be included in GDP figures.
If you've ever wondered how an entire nation of people can subsist on just $2 a day, this will explain it. Obviously life for these people is still incredibly hard, and I don't want to undermine just how intense poverty in these countries can be. But those two dollars go a lot further than they do in more developed economies. In a country where everybody is very poor, businesses don't have the opportunity to charge very much for their products, so the general cost of living is much lower. Economists will use something called purchasing power parity to adjust this because it's not fair to compare two dollars in a country like the DRC, where a decent milk and cost less than 50 cents, to two dollars in a country like Australia or Switzerland, where you would be lucky to get lunch for less than $50.
Adjusted for purchasing power parity, the DRC has a GDP per capita of $1,179, which means the average person is actually living on the equivalent of $4 a day, an improvement, but not a big enough one.
The actual way that people surviving countries like the DRC is that they are very self-sufficient at a household or a community level. They will farm their own food, collect their own water, and in many cases even build their own housing. These are all examples of household production, and it doesn't get counted in national GDP figures.
This means that people going out to work to earn a couple of dollars a day only end up spending that money on a few things that their household can't produce themselves, things like tools, materials, and fuel.
While this lets the households in desperately poor countries like the DRC look after themselves, it also perpetuates the cycle of poverty because it makes it hard to specialise. The foundation of modern economics is that individuals, organisations, and sometimes even entire countries should focus on what they are good at, because if everybody specialises in something and then trades the stuff they make around, we will be less with more overall.
Sometimes Smith, the grandfather of economics, used the example of a sowing pin. If an individual set out to create a single sowing pin, he would take them a lot of time to mine the iron ore, smelt it into steel, forge that steel into a thin wire, cut that thin wire to shape, and sharpen it to a point. After all of that, they will only have a sowing pin, which does not do them much good without fabric to sow.
It's much easier and more efficient for some people to focus on mining, some people to focus on metallurgy, and some people to run the shops to sell the sowing pins. All of these people can take a small profit from the value they have added to the process, and use that profit to buy more sowing needles than they would have been able to produce themselves, or anything else that they want to purchase.
The household industries that maintain most citizens of the DRC also stop them from being able to specialise to build out economic wealth. It's easy for economists to say just go out and specialise, but when most people are only making the equivalent of four dollars a day, it's simply impossible to survive by specialising in a traditional role.
Even if better jobs did become available, it's a big help. It's a big ask for the people of a war-torn country, marred by an endless history of violence and mismanagement, to give up their self-sufficiency for the hope that this time will be different, and that economic growth can be sustained for long enough for them to support themselves and their family by engaging in activities that help their entire economy.
Now it's time to put the Democratic Republic of the Congo on the economics explained National Leaderboard. Starting with size, the DRC has a GDP of $55.3 billion. Now as we have explored in this video, that doesn't give us a full picture of how much has been created in this economy because a lot of production is not being counted by official figures, but a large share of household industries isn't a great indication of a healthy economy anyway, so the DRC gets a 2 out of 10.
That small GDP is spread out over one of the largest populations in the world. The DRC is home to almost 100 million people, which means the country has a GDP per capita of $584, putting in line for the poorest country on the planet. It gets a 0 out of 10.
Stability and confidence is the unfortunate reason that the country is unable to capitalize on the material wealth advantages it has available to it. The country could easily be one of the most powerful economies in the world, but building functioning industries is difficult, and building them with ongoing conflicts, corruption scandals, power struggles and general mismanagement is like trying to build a sand castle in a hurricane. It doesn't matter how much sand you have, you aren't going to be able to build anything. The DRC gets a 1 out of 10.
Growth is the one redeeming thing that the DRC has going for it to potentially keep itself off the bottom of the leaderboard. The economy has doubled in size in the past decade, and while it wasn't growing from a high benchmark to begin with, then a lot of the economic growth has been driven by a general population growth, it's still a trend in the right direction, and the country gets a 7 out of 10.
Finally, industry. There's really not much to say here, it really doesn't exist. The average worker in the DRC has systematically been put in a situation where they have to be self-sufficient and contribute to the general economy as an afterthought. The exports they do have depends mainly on incredibly basic mining using hand tools to extract easily exploitable resources. The country gets a 1 out of 10.