Democratic Republic of the Congo (DRC) will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.
Felix Tshisekedi’s election in January 2019 marked the DRC's first peaceful transfer of the presidency, boosting investor sentiment. Export earnings from the extractive sector should continue to support multi-year growth, but weak economic diversification leaves the economy exposed to commodity price swings over the next 12 months.
Violent clashes between security forces and illegal artisanal miners are increasing security risks for foreign mining firms, and employees, in the Kolwezi mining district of Lualaba province.
In June 2019, the Congolese army was deployed in south-eastern DRC to clear illegal artisanal miners from two mining concessions belonging to Chinese and Anglo-Swiss mining firms.
Private property damage risks at mining sites by trespassing artisanal miners will remain significant in the next year.
Militant violence is prevalent in eastern DRC, particularly in North and South Kivu, posing risks to mining and other businesses.
However, the election of Tshisekedi has reduced violence in the diamond-rich Kasai Centrale region after the surrender of hundreds of Kamuina Nsapu militia since January 2019.
Protests and rallies by members of Tshisekedi’s Union for Democracy and Social Progress (UDPS) party are likely around local elections, although security forces will likely be able to keep these away from important commercial neighborhoods.
Real gross domestic product (GDP) growth in DRC will rise from an estimated 5.1% in 2018 to 5.4% in 2019, before averaging 4.5% between 2020 and 2023.
Growth will continue to be driven by the extractives sector, with copper production set to rise by 13% in 2019.
DRC remains the world’s largest source of cobalt, accounting for 72% of global production in 2018.
Cobalt production will rise by 25% in 2019, and grow by an average of 7% between 2020 and 2023.
The expansion in output is driven by fixed investment in several key mines in 2015-16.
However, export earnings will be tempered by weaker prices for cobalt in 2019.
The surge in cobalt supply has caused its price to fall 70.5% between H1 2018 and July 2019, resulting in a slower rate of deficit reduction in 2019.
DRC’s balance of payments position will be dominated by the goods trade balance in the long term, given its reliance on extractive industries.
A higher demand for capital goods imports in manufacturing and agriculture will slow an anticipated narrowing of the current account deficit.
The deficit is forecasted to reach 2.3% of GDP in 2019, from 2.5% of GDP in 2018.
Pharmaceutical imports (accounting for 6.5% of total goods imports in 2018) are particularly likely to rise, given the severe outbreak of Ebola in the country’s eastern areas.
Emergency spending rose by 48.3% year on year, in nominal terms, in the first five months of 2018. DRC’s debt burden will remain of minimal risk to fiscal stability given the high level of concessional debt.
The government debt burden is 80.3% of GDP, denominated in special drawing rights.
President Tshisekedi said he will be attentive to mining companies’ concerns and has called for "win-win" applications of the new mining code.
The new administration has already demonstrated its commitment to the mining industry, by authorizing military intervention to clear artisanal miners from mining concessions.
Sylvestre Ilunga has been named as caretaker Prime Minister and announced his first cabinet on August 26.
UDPS members were appointed as ministers of hydrocarbons and telecommunications.
Consequently, Tshisekedi will likely exercise greater influence over the allocation of oil and telecommunications concessions, posing higher contract review and revision risks for companies with agreements signed by former President Kabila after 2016.
An experienced technocrat, Ilunga is likely to secure the Tshisekedi-Kabila coalition government and provide a basis for dialogue with foreign investors.
On the downside, direct investment inflows have gradually declined, falling by 63.6% in US dollar terms between 2012 and 2018.
Cobalt, coltan, and germanium were designated as “strategic substances” in December 2018, with a 10% royalty rate.
Mining companies are likely to be most at risk of contract alteration when transforming exploration rights into production licenses, or transferring concession ownership.
This has led a major German automobile manufacturer to discontinue sourcing cobalt from the country.
Reputational risks for foreign investors have also increased, following the death of 43 miners at the KOV open-pit mine operated by a major Anglo-Swiss mining firm.
A major American automobile manufacturer has also switched to using more nickel — mainly sourced from Indonesia, the Philippines, and New Caledonia — and less cobalt in manufacturing battery components.
5 Key Takeaways
- Felix Tshisekedi’s election in January 2019 marked the Democratic Republic of the Congo’s (DRC) first peaceful transfer of the presidency.
- In June 2019, the Congolese army was deployed in south-eastern DRC to clear illegal artisanal miners from two foreign mining concessions.
- Real GDP growth in DRC will rise from an estimated 5.1% in 2018 to 5.4% in 2019.
- The deficit is forecasted to reach 2.3% of GDP in 2019, from 2.5% of GDP in 2018.
- President Tshisekedi has stated that he will be attentive to the concerns of mining companies and has called for ‘win-win’ applications of the new mining code.
The monthly Risk Outlook is supported by our 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.