Thursday, October 23, 2014

Un peu sceptique quant à la réalisation du budget 2015 ...

Suite aux demandes de certains de mes lecteurs, certains articles seront désormais en français (ou dans les deux langues) 

Le Premier Ministre a récemment présenté au parlement un budget de 8,3 milliards de dollars (prés de $ 9 milliards selon certains médias) pour l'année 2015. (Entre le moment ou j’ai écrit cet article en anglais et aujourd’hui, le parlement a jugé recevable ce projet de budget) 

J’ai donc décidé d'aller sur le site de la Banque Centrale du Congo (BCC) jeter un coup d’oeil au budget 2014 afin de vérifier si le gouvernement congolais était aussi fou que les actionnaires de certaines de nos banques commerciales qui exigent des taux de croissance de 30% chaque année. 

Pour l’année 2014, le site parle d’un budget de CDF 7,400 milliards ce qui représente plus ou moins 8 milliards de dollars américains. Par conséquent, le budget 2015 ne représentent qu’une maigre augmentation de 3% et le moins que l’on puisse dire est qu’ils ne sont pas très ambitieux.

Cependant, lorsque l’on regarde le taux de réalisation de ce fameux budget à la date du 12 Septembre 2014, on se rend compte  que ce dernier ne s’élève qu’à 36%! A ce rythme, ce taux ne devrait atteindre que 54% d’ici la fin de l’année soit 4,4 milliards de dollars américains. 

Sur base de cette petite analyse, on se rend vite compte que l’augmentation réelle de ce budget d’une année à l’autre tournerait plutôt autour des 91%!!! Je sais que c'est important d’être optimiste dans la vie mais un petit peu de réalisme n’a jamais fait de mal à personne…

Je n'ai pas encore vu les détails de ce budget, mais je suis curieux de voir comment ils vont générer ce niveau de revenus avec les performances actuelles.  

En ce qui concerne les dépenses, la dette intérieure est, comme toujours, la dernière priorité des autorités congolaises. En effet, selon les chiffres de la BCC, au 9 septembre, elles n’avaient payé que 1,38% de ce qui était prévu dans le budget 2014 !!! Cette situation a un impact important sur ​​les fournisseurs locaux et leur flux de trésorerie ainsi que  sur ​​l'économie globale dans son ensemble ... 

À suivre ...

Friday, October 17, 2014

A quick update on the dedollarization process

As you may (not) know, the Congolese authorities have started a process to “dedollarize” the economy two years ago. The goal is to ensure the Congolese Franc is progressively replacing the USD in the country’s daily operations. Several measures such as the obligation to pay taxes in the local currencies or the interdiction for commercial banks to lend to households in USD have been implemented to ensure this objective is reached in a 5-7 years horizon.

So, how are we performing more than two years after the start of this process? Well, I will just give one figure to illustrate the situation. As of December 2013, 85.1% of all banks deposits were in USD. 6 months later, the figures increase to 86%! Not the expected result…

Obviously, we should not expect obtaining significant improvement in such a short period of time but ideally it would have been good to notice at least a reduction of the phenomenon and not the opposite.  

Monday, October 6, 2014

A little bit skeptical about the realization of the 2015 budget…

The prime minister has presented a USD 8.3 billion budget for the year 2015. So, I have decided to go on the Central Bank (BCC) website to look for the 2014 budget to see if the government was as crazy as commercial banks’ shareholders that always want 30% growth year-on-year (Y-O-Y).

For 2014, the website has mentionned a CDF 7.4 trillion budget which is more or less USD 8 billion. Therefore, the increase is a meagre 3% and we can fairly say that they are not very ambitious. 

However, when we look at the 2014 budget rate of realization as of September 12th, you will realize that they have only achieved 36% of their budget so far. On a run rate, they will reach 54% by the end of the year which represents approximately  USD 4.4 billion.

Therefore, at this trend, the budget Y-O-Y increase is 91% !!! I know that it is important in life to be optimistic but remaining realistic is of essence here. I haven’t seen the details of this budget yet but I am curious to see how they will generated this level of revenues. I hope it won't be through fiscal harassment... 

Regarding the expenditures, the internal debt is, as always, the last priority of the Congolese authorities. Indeed, according to the BCC’s figures, as of September, they have only paid 1.38% of what was planned in their 2014 budget !!! This situation has a significant impact on the local suppliers and their cash-flow and on the economy overall…


To be continued…

Monday, September 29, 2014

Politics and banks interests rates, the saga continues…

After the government, it is now the turn of the Senate to complain about the high interest rates charged by banks  on customers’ loans.

The rationale of the president of the Senate is exactly the same as the one of the prime minister which is : the Central Bank prime rate is as low as 2% p.a , how to explain banks are charging at a average rate above 14 % p.a. ?

Well, once again this argument is flawed as as long as commercial banks won’t be   indebted to the Central Bank, the rate of the latter won’t have any impact on the their own interest rates. And this situation will remain the same as long as the banks assets will be primarly denominated in USD instead of the local currency.

The competition for customers deposits is so fierce in the DRC among the 18 existing banks that sourcing funds is becoming increasingly expensive. Therefore, it is difficult to expect banks to lower their rates when themselves have to face higher interest rate to source the deposits that will fund those loans.

It is funny to see officials claiming lower interest rates on loans while state entities are enjoying interests on term deposits as high as 7% p.a on the dollar!

The officials tend to forget that banks have to factor in risk when pricing an asset. For example multinational companies in the DRC can enjoy rate between 6 and 8% while their staff can have 10 to 12% or even less in some cases…

The customers that are charged the higher interest rates are actually State entities due to a higher risk due to poor management, lack of reliable financials and/or enforcable securities…

Furthermore, the senate and the government both think that decreasing the rates will increase the loans to the economy. Once again, this argument is flawed. Indeed, the assumption is that customers are refusing to borrow because of the high interest rates while, in general, the banks are refusing to lend money to customers due to risk considerations. 


I argue that this debate will become relevant when the Congolese economy will not depend on the USD which makes the country monetary policy impotent... 

Friday, May 16, 2014

A short guide to get rich fast as a manager of a State-Owned-Enterprise or any government agency…

If you have red the Congolese news lately, you probably saw the articles on the hearing of the deputy Minister of Finance at the Senate regarding dodgy transactions that took place in a commercial bank…

One of the concerns raised by the senator who has requested for that hearing was that the pricing offered to these entities (Ministry of Finance (projects) and BCECO) was higher than pricing offered to non-public (sector) organizations which seems weird if your plan as a manager is to reduce the cost of running your company…

Well, there are several reasons that can explain the higher pricing for public sector institutions.

One of them is the risk associated with those institutions. As you need to factor in the risk in your pricing, interest rates will tend to be higher for them than for other companies. Those institutions are riskier because they generally have bad track record when it comes to credit, poor (non-audited) financials, non-realizable collateral, the lack of recourse in case of non-repayment, etc. As a result, commercial banks have a low credit appetite for those institutions. Therefore, the few ones ready to take that risk will charge a fee high enough to compensate the latter.

Now if you take other services such as transfers and cash withdrawal for example. There is absolutely no reason, in theory, that the latter be more expensive for the Public Sector as mentioned in the senator complaint…

So, how one can explain this difference in pricing? One can argue, the lack of knowledge of the banks general pricing can explain this but it will demonstrate once again the poor management of those companies or it could be something else…

It could be simply another form of corruption. Indeed, to ensure they attract as much business as possible some commercial banks are ‘buying’ deposits. The practice is very simple and takes several forms. It can be payment of interests on current accounts/ term deposits in cash instead of paying on the account. Sometimes the interest rates or commission rates are simply higher because after taking its normal fees, the commercial banks will ‘incentivize’ the managers in cash obviously…

All those transactions are recorded in the company’s book as bank fees- ni vu ni connu. The only thing you will see in the


The result is richer banks and (public sector) managers while the companies they are managing continue to perform poorly.

Monday, May 12, 2014

The permanent electricity shortage and its impact on the economy…



I have been traveling several times to the Katanga province lately- for the reader not familiar with the DRC geography, the Katanga is the ‘mining area’ of the country and is considered to be the economical lungs of the DRC. 

All the major mining groups have been, at some point in time, involved in this part of the country (BHP Billiton, Vale, Freeport, Anglo American etc). Unfortunately some of them have left for different reasons. However, the sector is still booming thanks to the Chinese demand that remain quite strong.
One thing that will not go unnoticed when you spend few hours in Lubumbashi (the capital of the province) is the constant electricity cuts. 

The main issue with this situation is that mining companies are not spared and today most of those companies are working far below their full capacity. I have even visited a plant operating using generators! Imagine the diesel bill at the end of the month (also imagine how cheap must be the cost of production for that plant to remain profitable using a generator). 

(Some sectors such as oil distribution are taking advantage of this situation but the impact of those firms on the economy remain marginal especially that a big part of them are not even paying taxes…)
The level of production has become so insufficient that today we have to import electricity from both Zambia and Zimbabwe. Countries where we used to export until recently…

Below is a snapshot of the electricity situation as it stands according to official data.

Supply in MW
Demand in MW




Local production
600
Mining
1140
Import Zambia
150
Others
240
Import Zimbabwe
50


Deficit
580



Several projects to develop the electricity sector have been in the pipes for decades but we are still for at least one of them to materialize. By 2020, the demand for the Katanga province is forecasted to reach 4 000MW.



Fewer projects mean fewer investments, jobs and wealth created. Let’s hope that while we are waiting for new power projects to come to life, China’s appetite for commodities will remain as strong as now…

Discussion sur le secteur bancaire avec Bob Nzoimbengene, Partner chez Deloitte.

Une fois n’est pas coutume, l’analyse du secteur bancaire sera faite cette fois-ci par un ancien banquier. J’ai le plaisir d’accueillir mon ...