# **EXECUTIVE SUMMARY**

This report explores avenues for cross-border economic integration in the Lower Congo region. We seek to quantify latent trading opportunities, to identify the principal obstacles and to formulate practical policy proposals.

Bilateral official trade volumes between DRC and RC, recorded transit trade, and trade with Angola are all found to be small. Formal trade between DRC and RC is lower now than in the 1980s. However, we also find evidence of significant informal trading activity.

Given its importance in demographic and economic terms, we focus on the Kinshasa-Brazzaville region – projected to become Africa’s largest conurbation by 2025, and serving as the gateway to large hinterlands. The link between their capitals turns out to be the main bottleneck for the expansion of economic relations between the two Congos. Small but concrete measures for drawing together such a “natural neighborhood” could open a viable path toward regional integration and offer a complement to more ambitious but institutionally demanding regional agreements. Moreover, policy interventions to facilitate cross-border exchanges will be both more visible and better enforceable when first implemented between the two capitals than if attempted in more remote places. Finally, facilitating transport and trade across Malebo Pool, the river basin separating Kinshasa and Brazzaville, will create competing supply routes to and from the Atlantic sea ports, which can act as a form of insurance for the case of interruption of either route.

We find the costs of passenger and goods transport between Kinshasa and Brazzaville to be very high. A return trip for one person on a licensed vessel typically costs between 20 and 40 US dollars, representing 40 to 80 percent of the average monthly income earned by Kinshasa residents. Trade costs for goods across Malebo Pool, a distance of 3.5 km, have been estimated between 3 and 30 percent of FOB values. Some two thirds of these costs consist of border delays and administrative costs. Border formalities for persons and goods are slow, complex and poorly administered. A multitude of agencies are present at DRC border crossings in direct violation of presidential orders, restricting their number to four. Bribery, incivility and violence are rife.

Official passenger transport across Malebo Pool is controlled by a duopoly consisting of the two stateowned transport operators. Private operators are licensed under a quota regime and subject to steep fees payable to the duopolists. We find that the price of crossing the river at Kisangani, a comparable setting without a national border, is about 300 times lower than that of crossing Malebo Pool, with the number of passenger crossings nearly 175 times larger on a per-capita basis. The volume of official passenger travel between Kinshasa and Brazzaville corresponds to about one fifth of the volume of traffic between East and West Berlin during the times of the Berlin Wall.

We find that the high border costs and low traffic volumes are observed in parallel with significant market segmentation, suggesting a causal link. Our survey of retail prices in Kinshasa and Brazzaville shows that average prices of locally produced staple goods are largely equalized across markets within each city. When comparing prices across the river, however, we find them to be statistically significantly higher, on both sides, for goods shipped across the river. Our central estimate of this price margin is 20 percent. Despite the dominance of the Matadi-Kinshasa-Brazzaville transit route according to official statistics, prices of overseas imports appear to be somewhat higher in Kinshasa than in Brazzaville. Such price differentials point toward considerable unexploited arbitrage opportunities.

5