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PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB1871
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Estimated Date of
Appraisal Authorization
Estimated Date of Board
Approval
DRC- Enterprise Support Project
AFRICA
General industry and trade sector (100%)
P090872
DEMOCRATIC REPUBLIC OF CONGO
Ministry of Finance
[ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined)
October 5, 2005
April 10, 2006
September 28, 2006
1. Key development issues and rationale for Bank involvement
Potentially one of Africa’s richest economies, the Democratic Republic of Congo is one of the
poorest countries in the world. It is emerging from a decade of civil war and thirty years of
mismanagement. Per capita income declined steadily from US$380 in 1985 to US$85 in 2000.
GDP per capita then began to increase, to US$100 in 2002. A solid and ambitious economic
program, supported by the Bretton Woods Institutions, has been implemented satisfactorily since
April 2001. A transition government encompassing most parties in the civil war has been fully in
place since September 2003 which puts an end to the violent division of the country and creates a
political environment conducive to economic and social reunification.
Macroeconomic indicators have been improving since 2002. After several years of negative
growth rates, GDP grew at 3 percent in 2002 and 5 percent 2003. Hyper-inflation has been
brought under control and is now at about 5 percent. The exchange rate of the Congolese franc is
now stable. Improvement in some infrastructure services has enhanced the business environment.
These developments are helping create a steady platform for the restructuring and resurgence of
economic activity. Yet, the private sector is crowded out by public enterprises and is
concentrated in approximately 600 firms of annual turnover of more than US$10,000. The
informal sector is important as the current legal and tax environment, and financial sector are not
yet conducive to developing a larger private sector base. Data are scarce on the informal sector,
but the formal private sector in Kinshasa, for example, employs only 20,000 people out of a total
population of 7 million. Self-employment has become a survival strategy for the majority of
urban Congolese and an important source of income for rural populations.
Economic dislocation in the country in the nineties has caused the collapse of financial
intermediation. All financial intermediaries experienced massive losses as did depositors who
subsequently moved their funds to the informal financial sector which is estimated to account for
85% of all financial flows occurring in the country. Credit to the economy from formal financial
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entities represents less than 1% of GDP, and the banks' penetration rate has fallen to 0.04 percent
(35,000 bank accounts for the entire population). Eight public and private commercial banks are
in the process of being restructured or liquidated and little recapitalization of existing banks is
taking place to the support growth of their activities. Overall, the formal financial sector is
starved of resources and unable to provide support to private enterprises. The situation is
particularly severe for MSMEs. Decapitalized by asset losses (due to looting) and years of poor
trading, many of them are unable to meet normal banking collateral requirements and are denied
access to credit.
Rationale for Bank Involvement
Research and experience shows that broadly shared economic growth plays a stabilizing role in
post-conflict countries. This growth is badly needed to increase employment, raise the standard
of living and reduce income inequality. The rationale behind targeting financial support and
technical assistance to micro, small and medium-sized enterprises (MSMEs) is to enable a wider
range of entrepreneurs to take advantage of new opportunities in the recovering economy.
The second focus of this project is to continue address the social cost of the public enterprise
restructuring currently taking place and partially financed by IDA’s CDSP. These reforms are
now building momentum and it is anticipated that more public enterprises, in addition to
GECAMINES, three liquidated banks (NBK, BCCE and BCA), and OCPT, will be restructured
in the coming four years. Building on lessons learned from the GECAMINES example,
reinsertion programs will be developed. Experience clearly demonstrates that support of this kind
is required not only to ease the re-entry of workers into the economy, but also to maintain public
support for the overall idea of restructuring public enterprises.
The proposed project is therefore consistent with one of the main pillars of the government’s
strategy, as outlined in the Interim Poverty Reduction Strategy (I-PRSP May 2002), that of
“economic stabilization and pro-poor growth.” In particular, the government has shown great
interest in support for MSMEs by creating a ministry dedicated to the sector and establishing a
special microfinance unit at the central bank. The Banque Centrale du Congo (BCC) is in the
process of producing legislation on regulation of microfinance institutions which leaves
sufficient room for innovation.
Ongoing World Bank-financed projects
As described in the Bank’s Transitional Support Strategy, (2004), the first phase of the postconflict period was one of political and economic stabilization. The Bank is currently supporting
a number of projects designed to respond to the most pressing needs such reconstructing basic
infrastructure, restoring essential social services, reintegrating ex-combatants and providing
balance of payment support. Directly associated to the sector targeted by this project is the
US$120 million credit provided for the Private Sector Development and Competitiveness Project
(PSDC) which aims to improve the business environment and support the restructuring of key
state-owned enterprises. The PSDC disburses well and is rated Satisfactory.
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As the country moves into the second post-conflict stage, that of recovery, the proposed project
would serve to kick start broad-based economic growth and would help extend the benefits of
economic stabilization and restructuring to a greater portion of the Congolese population.
Donor Coordination
There are several initiatives currently being pursued in the area of MSME development by the
IFC, GTZ and USAID. However, these activities remain quite isolated and are not sufficient to
meet the tremendous need for MSME development in a country of this scale. Microfinance
institutions have existed for many years in DRC but the sector is still very underdeveloped. The
proposed project will be complementary to these donor initiatives and will develop cooperative
relationships with these organizations, trying to leverage their capacity. Also, at this stage, no
other donor is providing funding for the social cost of the public enterprise restructurings, giving
the Bank a critical role to play
2. Proposed objective(s)
The project will foster private sector-led growth through provision of direct support to
enterprises of all sizes. Growth of micro, small and medium sized enterprises (MSMEs) will
likely contribute to employment creation, creation of productive activities and economic growth
in several sectors of the economy and in various provinces. Social retrenchment programs will
allow further public enterprise reform, indirectly contribute to the improvement of delivery of
basic services to the population, and mitigate the negative social impact of the restructuring.
3. Preliminary description
Component #1 Providing direct support to Congolese Enterprises
A. Capacity Building
 Cover in part or in full the costs of providing appropriate services to the project’s
beneficiaries (including through selected providers);
 Build capacity of local business consultants providing these services.
 Support the establishment of business information centers to serve project’s beneficiaries
(identify business opportunities and disseminate);
 Provide technical assistance to financial intermediaries to improve provision of finance to
firms of all size categories.
 Assist the Government to improve its procurement guidelines to allow SMEs to target
procurement opportunities available in DRC, especially under Bank and other donor
financed programs.
B. Increase Access to Finance
 Support the capital/start up costs of expanding operations of intermediaries to serve
project beneficiaries (micro, small, medium and large).
 Provide financing to targeted microfinance institutions, banks and finance companies
(individual loans of less than US$5,000 for micro-enterprises and up to US$500,000 for
SMEs);
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
Support the creation of an Enterprise Development Fund for the provision of equity and
quasi-equity to SMEs on a public private partnership basis. Investments would range
between US$5,000 and US$200,000;
C. Strengthening the Business Environment
 Provide technical assistance to reform the tax system applicable to MSMEs ;
 Develop a focused process to allow registration of SMEs in DRC. Address the
insufficiency of recovery rights/creditor rights.
 Address need to create functioning collateral system.
 Identify and address obstacles specific to women entrepreneurs. Examples from other
African countries include the lack of property rights which hinders access to credit.
 [Provide technical assistance to the Central Bank (subject to agreement on IMF
involvement)]
Component #2 Continuation of Public Enterprise Restructuring



Assist the government in meeting the social cost of public enterprise reforms by
financing severance packages for retrenched workers. Targeted public enterprises will be
identified during project preparation.
Identify and implement appropriate plans for economic reinsertion of these retrenched
workers including the consideration of worker training/skills enhancement programs.
Define and put into action alternative methods for providing social services (e.g.
education, health) which were previously provided by the public enterprises concerned.
Component # 3: Implementation arrangements
It is expected that the Ministry of Finance would “champion” this project. In view of the large
number of service providers and financial intermediaries that could be involved, a high degree of
decentralization will be needed in order to reach out to MSMEs in all provinces of DRC. An
“Employment Agency” could be created to supervise some activities of the project with regional
hubs to allow closer support to the target population.
4. Safeguard policies that might apply
[Guideline: Refer to section 5 of the PCN. Which safeguard policies might apply to the project
and in what ways? What actions might be needed during project preparation to assess
safeguard issues and prepare to mitigate them?]
5. Tentative financing
Source:
BORROWER
IDA Grant
Total
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($m.)
0
100
100
6. Contact point
Contact: Ivan Rossignol
Title: Sr Private Sector Development Spec.
Tel: (202) 473-0105
Fax:
Email: [email protected]
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