DRC: Political instability elevates protest risks

02 October 2017

Political instability will pose an elevated risk of death and injury to employees located in the Democratic Republic of Congo (DRC) in 2017. The mining sector will perform well in coming quarters, although as a whole the economy will underperform. Whilst the government has been keen to attract investment in mining, regulatory uncertainty over export bans and mining code reform will weigh on investor confidence.

Security Environment

In 2017 workforces will be exposed to an elevated risk of protests and riots in the DRC. The political situation in the country is fragile, as President Joseph Kabila has remained in office beyond the 19 December 2016 constitutional limit. An agreement between Kabila and the opposition Rally coalition, which allows Kabila to remain in position until elections are scheduled in late 2017, is likely to fall apart this year and the election will be delayed until 2018.

Further electoral delays will likely cause violent protests in key urban centres. On 24 August 2017, opposition leader Felix Tshiskedi called for civil disobedience from 1 October 2017 to pressure the government into holding elections. The current political situation has already caused a number of violent protests. 40 people were killed in demonstrations throughout the country in December 2016, as the security forces used tear gas and live ammunition to disperse protestors. The use of force by security forces is likely in any future protests, and employees could become caught up in such incidents.
Companies should have adequate crisis management strategies to respond to the risks facing its personnel.

A number of mining projects in the pipeline are located in eastern DRC, a region affected by on-going militant activity, including by Forces Démocratiques pour la Libération duRwanda (FDLR) and Mai-Mai militia. These groups pose a high risk of small arms attacks on road cargo and civilians, and will also carry out kidnappings. In March 2017, a French national who worked for a mining firm in Maniema province was kidnapped. The individual was released in May 2017, following negotiations in which the kidnappers demanded a USD 1 million ransom. It is unclear if the ransom was paid.

Trading Environment

Political instability and security risks will weigh on the DRC’s medium-term economic outlook, despite robust production of gold and copper. Mining production expanded by 23.7% in Q1 2017, driven by the expansion of several key mining sites, including Glencore’s Katanga mine. Despite significant growth in the mining sector, DRC’s overall economic performance will underwhelm. Real GDP growth was 2.4% in 2016, marking a fifteen year low. This is largely a result of underperformance in non-mining sectors as political instability weighs on activity. Import volumes at Matadi port fell by 45.4% y-o-y in January-February 2017, an indication of weak consumer demand.

The government is not in a position to provide significant support to the economy. Currency inflows will remain strained in coming months, contributing to a sustained sell-off of the Congolese franc. The franc lost 18.2% of its value between January and June 2017. This will ensure elevated inflation levels, forecasted at 40.9% in 2017. Reduced financial assistance from foreign donors in the wake of delayed elections has further weakened the external position, with foreign reserves falling to USD 484.9 million in June 2017, providing 2 weeks of import cover.

Investment Environment

Despite Kabila’s proactive approach to foreign investment, regulatory uncertainty poses a downside risk to mining operations in the country. A review of the existing 2002 mining code, which was expected to increase royalties from 2.5% to 3.5% and raise state participation in concessions from 5% to 35%, was abandoned in February 2016. 

However, the 2002 code is felt by the government to give preferential treatment to mining companies, and in May 2017 Mines Minster Martin Kabwelulu announced government plans to reintroduce legislation in parliament to amend the code. A revised code is
likely to increase the government’s stake in concessions and raise royalty rates, elevating the risk that the government will seek to renegotiate mining contracts on a case-by-case basis.

The government announced a ban on the export of unprocessed copper and cobalt ore in April 2013, yet has continuously delayed its introduction since then. This was due, in part, to opposition from mining firms in Katanga province and unreliable electricity supply to support domestic processing of minerals. However, the ban could be introduced in 2017, elevating regulatory uncertainty for international mining firms.

DRC: Political instability elevates protest risks

††† The inclusion of political violence will push the price up, and there is unlikely to be any appetite for assets near the Tanzanian, Rwandan, Ugandan or Burundian borders.
†††† Appetite is extremely limited and realistically most insurers decline DRC non-payment risk.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for China, Myanmar, Ukraine and Democratic Republic of Congo, all of which have been the subject of recent enquiries from JLT's client base.

CPS Risk Review

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com