Robbie Fair
Hyperinflation in the DRC was rampant throughout the eighties and nineties. This was caused by the government often financing extravagant projects by borrowing from the domestic banking sector. This led to a huge growth in the money supply, which if any of you have taking intro to macroeconomics, this increasing inflation. There have been various IMF and World Bank plans to curb inflation, and there were successful for a couple of years after their implementation, but inflation always went back up. From 1991 to 1993, inflation soared between 2,000 percent and 23,000 percent. It has declined steadily since then, but is still ridiculously high (500%)
The informal economy is defined as economic activity that takes place outside of the official economy of a country. It is usually unmeasured, unrecorded and illegal, and includes economic activity that is unlicensed and designed to avoid taxation. Such activities include smuggling, tax evasion, illegal street vending, and illegal manufacturing. People are generally forced to resort to the informal economy rather than by choice. Such a situation is created when the deliverance of public services is not regular or at all. In such a case, people are forced to rely on their own efforts in order to survive. The informal economy in a society tends to grow as the political situation worsens.
In DRC, like many poor countries, the informal economy is considered the real economy and has become institutionalized and more predictable and rational than the official economy of the country. Mobutu started the informal economy with his personalization of the state. He disposed of public property and money as if it were his own, showing no respect for public (or private) property. Activities that are normally considered public domain such as education, health care and transportation have become parts of the informal sector.
There are several positives to having a strong informal economy. It provides access to goods and services that are normally, and often unfairly restricted by the government. It also compensates for institutional and infrastructure defiencient, and enables poor to get by and possibly even succeed economically. Profits from informal activities go into communities more often then those from the formal economy, and women who could not participate in formal economy have a chance to gain power and wealth. Most importantly, it makes people more independent of a corrupt and inefficient state.
In the early ‘90s, the informal economy in Zaire was three times the size of the official economy. A strong informal economy reflects the instability of the current political and economic system to serve the needs of the general population. While there are some positives, a large informal economy is not beneficial for long-term economic growth. The rich tend to benefit more from informal economy because enormous amounts of money required to ensure safety. The state is also deprived of much needed revenue without taxes and is also deprived of foreign exchange which eliminates income from tariffs. An increasing informal sector leads to labor shortages in official jobs, and there is unfairness of access to and benefits from informal economy. Long term economic growth requires increased importance of the formal economy, and less importance of the informal economy
Corruption is loosely defined as low security of property rights and dishonest bureaucracies that honor bribes and money over rights and fairness. Throughout Mobutu regime, corruption was the norm. There was no guarantee about how long one would remain in office, so it was typical for officials to profit as much and as quickly as possible for corrupt practices. Much of Mobutu’s spending was untraceable, which devastated both the economy and the budget. The practice of patrimonialism, or the free rein of the enrichment of the president and his friends and family, was widespread in the DRC under Mobutu’s regime. Mobutu controlled who held all high office positions. This system worked well to keep Mobutu and his rich associates ridiculously rich and in power, so they there unwilling to sponsor reforms even under immense internal and external pressure to stop the corruption that has been detrimental to DRC’s economy
Corruption is detrimental to the economy because it reduces incentives and opportunities to invest, innovate and obtain foreign technology. This reduction in investment reduces economic growth, even in countries with extremely inefficient bureaucracies. Corruption may even lead to more bureaucratic delay, because when one offers money for quicker or better service, a custom is established. Then in the future, that activity is halted or unnecessarily slowed down until a bribe is received.
Bureaucratic efficiency (absence of corruption) is highly correlated with higher GDP growth, higher per capita
GDP and higher investment. In DRC, corruption has failed to create new jobs and expand the economy, further ruining the lush resources provided by its land
Ethnolinguistic Fractionalization (high diversity) is also highly correlated with corruption and institutional inefficiency. The DRC, since it was a colony of Belgium and its boundaries were drawn without any regard to different ethnic groups, has one of the highest ethnolinguistic fractionalizations in the World (90, which means that there is a 90% probability that two people drawn at random from DRC population will not belong to the same ethnolinguistic group). The country contains almost 250 ethnic groups, which might slow down diffusion of ideas and technological innovations and also creates conflict between ethnicities, which needless to say, doesn’t help the economy.