Monday, December 19, 2016

2016 is definitely not a good year economically. Thanks politicians...


I acknowledge the fact that today people in general and Congolese in particular are more focused on the country political situation as today is supposed to be the last day in office of the incumbent president but the probability for him to leave by tomorrow is null.

However, the political situation has a serious impact on the economy of this country and the latter on the lives of millions. Therefore, it is important to talk a little bit about the economical situation as it stands currently.

The former primer minister was very proud of his macroeconomics achievements. Therefore, I would like to summarize some of the key indicators, few weeks after his resignation.

The GDP growth rate forecast for 2016 went down from 8,8% to below 4,3% and it is expected to grow to 5,5% in 2017 according to Central Bank. Data. The shrinkage of the economy led to several (small) businesses to close shop. The impact on the financial sector is enormous with a significant increase in provisions for non-performing loans. This could further damage the sector already weaken by the bankruptcy of the fourth largest lender.

The reduction of foreign currencies inflows has put pressure on the Congolese Francs that has depreciated by 38% since the beginning of the year leading to an inflation of 16,39% y-o-y. I hear, here and there, that this is mainly due to the mining companies revenues decrease following weak copper and cobalt prices. Although this is partly true, the lack of energy is one of the major reasons the output of those mining companies has dropped. Mining companies have been crying for years for a more electricity but nothing has been done except of lot of conferences on the country hydroelectric potential.

In addition to that, the failure to diversify our economy has increased our dependency to the commodities market (the mining sector was representing 50% of the GDP last year…) and made us vulnerable to any price shock…

With the Central Bank prime rate up to just 7% p.a., the real interest rate on the local currency is actually negative. This will lead people wanting more and more hard currencies with further depreciation to come.

The 2017 state budget has being presented at USD 4 billion against 8 billion the previous year. This will have a negative impact on several industries, as the State is the #1 customer in many of them such as automobiles, airlines, hotels, etc.

Why is the budget size extremely important for the years to come? Because the budget constraint was the main argument used not to organize elections this year. Therefore, I wonder how are we going to organize those costly elections in 2018 with a budget 50% smaller than the one not big enough to organize the 2016 elections…

There are many more things we could say regarding the (poor) state of this economy but my heart is not there… I will stop here by saying that while politicians are fighting to obtain positions, no wealth is created and worse, no (serious) investors will risk their money in this long period of uncertainty ahead of us…

But I guess the name of the game for them is to make as much money as possible in the shortest time possible to ensure their family can study and receive medical treatments in proper schools and hospitals they deny to their own people but I digress here… this is not a political blog remember? but I guess I am just a concerned citizen…



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