DR Congo power board to be sacked- Window dressing???

It is estimated that the DRC should invest as much as USD 749 million in its energy sector (8.8% of the GDP) per year for the next decade to develop the generation capacity for export. The expected net revenues from this export would be USD 519 million per year (6.1%) (The World Bank Group, 2010). The potential net revenues as well as the initial investments are huge for the DRC.

However, with a GDP of only USD 10.5 billion (current prices) and a gross saving rate of 17%, the DRC simply does not have the financial capabilities to fund those billion dollars projects. Therefore, having access to Foreign Direct Investments or attracting Independent Power Producers will be crucial to develop the sector. Today, the majority of FDI is directed towards mining industry estimated to be more lucrative (AFBD/OECD, 2008). The problem is that the DRC is often perceived, rightly, as a very difficult place to do business in, with a very low level of protection for the investors (The World Bank Group, 2011).

The recent case of the Canadian First Quantum which has seen its mining titles withdraw after an investment of more than USD 593 million (First Quantum, 2011) is the last example of the lack of protection that investors are exposed to. 

To attract more foreign investors in its energy sector, the country must work on improving the country’s investment climate and competitiveness.

According to the Societe Nationale d'Electricite (SNEL) itself, the involvement of the government in its daily activities is one of its major problems and the high level of corruption[1] within the ministries and the public companies is increasing the inefficiencies in the sector (Ministere de L'Energie Congolais, 2009)

I argue that sacking the Board of Directors of SNEL is simply window dressing if they do not address the real issues…

Meantime, good luck for today demonstration and well done to the committee...

---

[1] The DRC rank on the Corruption Perception Index is 164 on 178 (Transparency International, 2010)

Electricity situation of the DRC...

The hydroelectric potential of the DRC represents 37% of the African continent potential. It is estimated at 100 000 MW with 44 000 MW around the Inga site in the Bas-Congo province.  However, the electricity production actual figures are far from reaching this potential. Indeed, the current installed capacity is a 2 580 MW with a meager 1 294 MW actually available for the population and the industry. The difference between these two figures is the result of years of underinvestment, poor maintenance, and involvement of the State in the management of the national electricity company (SNEL)…

In 2008, only 8.9% of the population had access to electricity and it is worth noting that I am not talking about a 24/7 supply as power shortage is part of Congolese daily routine even in the most posh neighborhoods of the capital, Kinshasa.

The country needs billions of dollars to reach its potential (up to USD 60 billion for the ‘Grand Inga’ project itself) but it will desperately needs to change its legal framework and improve its business environment to attract private investments… 

Source: SNEL (National Electricity Company)

Weekly update: Forex and Inflation

Following the CDF shortage described in my previous article, the USD has continued to lose value (-0.7%) against the local currency. According to Ali Nasser, trader in an international bank operating in Kinshasa, the commercial banks had to purchase CDF from the Central Bank in order to find the necessary Congolese francs to pay their customers taxes.

As stated in my last article, the Congolese economy is highly dollarized and the principal reason companies keep/seek CDF is to pay taxes which cannot be paid in foreign currency. Commercial banks unable to sell USD to the Central Bank to pay for these taxes because of their exchange position (square or too short) had to borrow money (from the same Central Bank between 32.5 and 48%).

Source: Banque Centrale du Congo

On the inflation side, the Consumer Price Index has increased by 0.27% in a week leading to a year-on-year inflation of 18.68%. If this trend remains stable until the end of the year, the annual inflation rate should reach 26.43%. 

50 years after the independence (further Analysis ) …

In order to have a better understanding of the DRC situation 50 years after its independence, it  worth comparing it with the situation of some of its ‘neighbors’. I have included in the analysis an emerging country, South-Africa; to show how long will be the road to ‘prosperity’ for the DRC. As stated in my previous article, the DRC has one of the lower GDP per capita in the world.

I acknowledge the fact that the GDP per capita is far from being a perfect indicator as it assumes that the revenue produced in a country is equally divided among all its inhabitants. We know that this is a flawed assumption in the World in general and in developing countries in particular. This inequality in revenue repartition is measured by the GINI coefficient (we’ll talk about it in a future article).

However, the GDP per capita is one of the only indicators that allow us to compare countries with different population size and based on the latter, the DRC is in a very bad situation even when compared to other ‘poor’ countries such Rwanda and Zambia…

Source: World Bank

Most of the countries used for comparison have had a quasi-flat growth of their GDP per capita, except for Angola that have seen a substantial growth since the end of the war and thanks to the revenues generated by the oil industry (the graph was distorted by South Africa presence, therefore, I have decided to leave it out). 

Source: World Bank

When we look at the GDP in absolute term, the Congolese figure is really weak for a country with such a potential. Years of war, mismanagement from the authorities, low level of investments, the difficulty to do business in the DRC, the high level of corruption are some of the reasons to explain these poor performances…  

Source: World Bank

(GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars (World Bank).)

50 years after the independence…

During the last 50 years the Congolese GDP (adjusted for inflation) has grown at a meager CAGR of 0.5% per year reaching its highest level in 1988 with a GDP of USD 8.3bln before a free fall to USD 4.2bln in 2001. However, since 2001, we have registered an increase in the country general production as shown in the graph below but only stands at 76% of its 1988 level.

Sources: World Bank

It is worth noting that despites this relative improvement, the GDP per capita (adjusted for inflation) remains one of the lowest in the world at USD 97 per inhabitant!!! More than 3 times lower than the figure of 1960!!! This can be explained by the fact that the population has grown at a far higher rate than the GDP. 

Sources: World Bank

DRC Fiscal situation

According to the Central Bank data, the DRC has registered a fiscal surplus of approximately USD 3 million in March after a deficit of USD 2 million in February. Both government revenues and expenditures have substantially increased in March. On the revenues’ side, this increase can be explained by the payment of the 3^rd installments of corporate taxes which is due on the 31^st of March each year. On the expenditures’ side, the increase is mainly due to an increase in civil servant salaries payment (+45%) and in State entities ‘functioning fees’ (+76%). Year to date, the government has earned USD 3 million more than it spends. 

Source: Central Bank of Congo