- [Narrator] 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 $584.00,
which means that the average person living in the country
is producing less than $2.00 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.
By the way,
the truly unfortunate thing about the DRCs 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 for 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 its 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 ores,
and even petroleum,
but it's also home to significant quantities of
the planet's reserves of coltan, 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 productively be brought online,
the growth of these industries will be forced to hold.
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 DRCs 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 the country gained independence from Belgium
after a truly horrific period
of being exploited for its farmland, precious stones
and human labor.
Independence 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, botched elections,
and a military coup,
the US-backed President Mobutu
emerged as a 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 companies still need 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 nationalization 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 mines of the DRC
to the mines 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 organizations 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
so that they could build out some roads
and buy some equipment
to start efficiently harvesting
the vast resource well they sit on top of.
From that revenue,
they could pay back those loans
and make further investments into more tools
to extract even more resources
and generate even more revenue,
a 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 ended 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 factional rivalries,
holding onto power is hard enough as it is
without a 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
inside of countries that are very wealthy
by global standards.
Saying that the Democratic Republic of the Congo
has a GDP per capita of $584.00
or that the average citizen lives on less than $2.00 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 should, in 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.
Economists 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 organization
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
a woodworking enthusiast
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 woodworker sold that 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 $2.00 a day, this will explain it.
Obviously, life for these people is still incredibly hard
and I don't wanna undermine
just how intense poverty in these countries can be,
but those $2.00 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 $2.00
in a country like the DRC,
where a decent meal can cost less than 50 cents,
to $2.00 in a country like Australia or Switzerland,
where you'd be lucky to get lunch for less than $50.00.
Adjusted for purchasing power parity,
the DRC has a GDP per capita of $1,179.00,
which means the average person
is actually living on the equivalent of $4.00 a day,
an improvement, but not a big enough one.
The actual way that people survive in 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 specialize.
The foundation of modern economics
is that individuals, organizations,
and sometimes even entire countries,
should focus on what they're good at,
because if everybody specializes in something
and then trades the stuff that they make around,
we will be left with more overall.
Adam Smith, the grandfather of economics,
used the example of a sewing pin.
If an individual set out to create a single sewing pin,
it 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 shape
and then sharpen it to a point.
After all of that, they will only have a sewing pin,
which does not do them much good without fabric to sew.
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 sewing 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 sewing needles
than they would've been able to produce themselves
or anything else that they wanna purchase.
The household industries
that maintain most citizens of the DRC
also stop them from being able to specialize
to build out economic wealth.
It's easy for economists to say,
"Just go out and specialize,"
but when most people are only making
the equivalent of $4.00 a day,
it's simply impossible to survive
by specializing in a traditional role.
Even if better jobs did become available,
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 two 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 $584.00,
putting in line for the poorest country on the planet.
It gets a zero 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 sandcastle in a hurricane.
It doesn't matter how much sand you have,
you aren't gonna be able to build anything.
The DRC gets a one 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,
and a lot of the economic growth
has been driven by general population growth,
it's still a trend in the right direction
and the country gets a seven 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 one out of 10.
Altogether that gives the DRC
an average score of 2.2 out of 10,
which puts it into last place
on the "Economics Explained" national leaderboard.
Thanks for watching me.
Bye.