Estudos Económicos
Congo, The Democratic Republic Of The

Congo, The Democratic Republic Of The

Population 81.6 million
GDP 470 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 9.5 6.9 2.4 2.4
Inflation (yearly average) (%) 1.2 1.3 5.9 40.4
Budget balance (% GDP) 1.3 -0.1 -0.8 -1.0
Current account balance (% GDP) -5.0 -4.1 -4.4 -4.2
Public debt (% GDP) 16.8 18.8 21.5 24.3

 

(e) Estimate (f) Forecast

STRENGTHS

  • Abundant mineral resources (copper, cobalt, diamonds, gold, tin)
  • Considerable hydroelectric potential
  • International effort to solve conflicts in the Great Lakes region
  • Debt relief as part of the HIPC and MDR initiatives

WEAKNESSES

  • Security crisis in the Great-Kasai region consecutive to the Kamwina Nsapu rebellion
  • Political crisis following the Supreme Court decision to postpone presidential elections
  • Weak infrastructure (transport, energy, telecommunications) and failures of governance
  • High poverty levels
  • Foreign exchange reserves at a critical level (less than one month of imports)

RISK ASSESSMENT

Growth constrained by internal and external headwinds

In 2016, the country suffered from the fall in the prices of exported commodities, chiefly copper prices, and reached a historically low level. In 2017, growth should pick up slightly, driven in particular by an increase in copper production and a recovery in mining output prices, but should remain relatively sluggish. Thus, extractive industries are expected to be the main engine of growth, while the government's diversification efforts in 2016 in the context of the National Strategic Development Plan (NSDP), which is being drawn up, should support only modestly the agricultural, telecommunications and transportation sectors. Political and security instability is expected to keep fuelling foreign investors' risk aversion (FDI inflows decreased by 28% in 2016). Private consumption will also suffer from high inflation, which results, mainly, from the Congolese France devaluation.

Under pressure, the currency lost close to 25% of its value against the dollar in 2016 and almost 20% in H1 2017. The weak transmission channels of the monetary policy towards the real economy stem the Central Bank’s efforts to contain inflation.

 

Twin deficits persist in spite of the recovery in mining output prices

in 2017, in spite of an increase in tax receipts on the back of improved mining output prices, the fiscal deficit is expected to linger.  Indeed, the government presented an expansionist 2017 Budget with significant increase in expenditures after growth reached a 15-year low in 2016. Moreover, the deterioration of the political situation might deprive the country from a part of the contribution made by external grants. The public debt burden, much reduced thanks to debt relief by its international creditors in 2010, remains sustainable.

Despite the growth in exports of mining products, the current account deficit will probably remain large in 2017. The high deficit in the services and income accounts, because of foreign workers’ salaries payments and of foreign-owned companies' repatriation of profits, will keep the current account balance in negative territory. However, the trade surplus should grow thanks to the increase in copper production and, more broadly, strong gold and cobalt exports. The pressure on the Congolese currency will not ease in the next few months. Foreign exchange reserves, which covered only three weeks of imports at the end of Q1 2017, dwindle and the Central Bank can no longer step in to support the currency. Despite a significant risk of liquidity crisis, IMF support, in order to alleviate external accounts, seems to be excluded without stabilization of the political and security situation.

 

Acute security crisis, political crisis in a dead-end

The security situation in the DRC has recently deteriorated. Indeed, despite the defeat of the rebel group M23 in 2013, violence in the Eastern part of the country (North and South Kivu), the scene of sporadic massacres of civilians perpetrated since May 2014 by Mayi-Mayi groups, patriotic militias formed, essentially, on ethnic lines, are experiencing a worrying upsurge in recent months. Since August 2016, Grand Kasai, in the center of the country, is also plagued by an intense episode of violence on the basis of ethnic conflict after Jean-Pierre Mpandi, a traditional chief (Kamwina Nsapu) who disputed Kinshasa’s central power, was killed during a military operation. The so-called Kamwina Nsapu rebellion has already killed more than 3,300 people, according to the Catholic Church.

In addition to this deteriorated security context, the country is facing a political crisis. The Supreme Court's decision to postpone presidential elections, originally scheduled for December 2016, allowed President Joseph Kabila, after two consecutive five-year terms, to remain in office after several unsuccessful attempts. An agreement reached with the opposition on New Year's Eve 2016 provides for the holding of the presidential election, at the latest, in December 2017. However, as the months of 2017 unfold, and, as indicated by the electoral commission in July, it seems increasingly compromised that the elections will be held before that date. While this likely delay is partly due to the government's inability to hold a ballot in the Kivu and Grand Kasai, it is also the result of the President's reluctance to implement the New Year's Eve deal. This reticence is symbolized by the appointment of opposition dissident, Bruno Tshibala as Prime Minister. This choice appeared to be a provocation to the opposition coalition, the "Rassemblement", which supported the candidacy of Félix Tshisekedi, son of the opponent who died in February 2017, Etienne. By imitating several sub-Saharan African leaders who bypassed constitutional limitations at the end of their term, Joseph Kabila made his country fail the test of the first democratic alternation since the entry into force of the 2006 Constitution and fuelled popular anger. The wave of protests against President Kabila was suppressed in violence and supporters of the opposition imprisoned. In a country suffering from corruption and poor performance in governance, the political and security crises add to an extremely unfavourable business environment (184th out of 190 countries in the Doing Business 2017 ranking).

 

Last update: June 2017

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