Commodity booms will not last forever: Implications and recommendations for the Democratic Republic of Congo

Abstract

This paper examines the distributional effects of the 2017 fall in world mineral prices using a CGE microsimulation for the Democratic Republic of Congo. We find that a 20 percent reduction in world mineral prices leads to a dramatic reduction in export revenue, terms of trade, absorption, investment, and private consumption. The strongest welfare losses occur in urban areas, especially the capital city of Kinshasa. We also find that the impacts on labour returns and household welfare are larger in the long run. Regardless of the location, however, we find that poor households are hurt most. We further simulate policy responses to falling commodity prices in light of the new Mining Code of the Congo. Our simulation focused on export tax, sales tax, and human capital development. These simulation results show that alternative policy responses to commodity prices should not be implemented in isolation from complementary measures and general business regulation policies.