Quick update on the DRC Macros…

We are approaching the end of the year and it's time to have a look at the Congolese main economic indicators.

GDP Growth: The government has revised its growth forecast to 9,2% (originally at 10,3%) following the commodities prices decrease caused by the worries on the Chinese economy hard landing. Since January 2015, the main commodities exported have all seen their prices decreased particularly copper (-21%), Cobalt (-5%) and Gold (-4%).

The impact of the commodities market on the GDP growth demonstrate the over reliance of the Congolese economy on its mining sector. Last year the mining industry alone accounted for almost 50% of the total growth. This year, the sector will be knocked by a probable deceleration of the production due to electricity shortage as well as the price decrease mentioned earlier.

Inflation: still under control with a year-on-year inflation of 0,66% compared to a forecast for 2015 of 3,6%. As a result, the Central Bank is maintaining its prime rate at 2% p.a.

Foreign exchange: Still stable around 925 CDF for a USD.

International reserves: as of August the 21^st, the reserves stood at USD 1.622 billion representing 6.6 weeks of import of goods and services. The reserves are down by approximately USD 18 million month-on-month. This can be explained by the reduction of revenues generated by the mining sector.

Public finances: remain in surplus avec 7 months according the data from the Central Bank. It is worth noting that the Government has exceed its budget related to the national debt which is a good things for local businesses that often complain that the government is freezing their payments and destroying their activities. To know if the budget was big enough to satisfy all creditors is another debate…

2014 GDP growth – the mining (non) effect

2014 GDP growth – the mining effect

The Central Bank of Congo (BCC) has recently released a very interesting report named “report on the monetary policy 2014”.

According to the BCC report, the economy grew by 9.5% in 2014 compared to 8.5% in 2013. This is 4.8% higher than the average of the SSA region.

Source: Central Bank of Congo

The primary sector remains the most important contributor to the GDP as one could expect for a mining country like the DRC. However, it is worth noting that 5 years ago it was not the mining but the agriculture sector the main contributor to the country’s growth. In 2014, the mining sector has contributed up to 50% to the country's growth while its contribution was “only” 28% in 2013 according to that same report.

This report is clearly demonstrating the tendency for the economy to heavily rely on its extractive sector with the risk of been negatively impacted by a downturn in commodity prices (the copper price has significantly dropped recently). The data show that the country should work more on diversifying its economy.

According to the BCC, the total production of copper was 1 million tons in 2014 compared to only 0.3 million tons 5 years earlier. The total value of copper exported in 2014 was USD 7.4 billion while the cobalt value was USD 2.2 billion.

On the paper, this looks good but when you are travelling in the Katanga province, you don’t really notice the positive impact those numbers have on the population unless you are working in one of the mining “value chain” companies.

The debate is open between the mining companies claiming they are paying taxes therefore it is the role of the government to provide the basic services and the government that claims the mining companies are not paying enough taxes thanks to a mining code too “favorable” to them. I am sure this debate with continue for some times.

I am not a mining nor a taxes expert but a couple of paragraph later in the report the BCC is mentioning a study done by a Belgian professor Dr Marysse on Tenke Fungurume as well as an IMF comparative study showing that the fiscal charges supported by the mining companies in the DRC is approximately 13% of their turnover compared to 45 to 65% in the rest of the world.

If those data are correct, I argue that there is something wrong that the government would have to address in the new version of the mining code they are working on.

The impact of the mining industry growth on the population is yet to be felt and the government, in my opinion, should do anything within its power to make sure the population starts benefiting from this mining cycle before it is too late.

When I say everything in its power, I am not talking about harassing the private sector obviously…

What is wrong with those people ?!?!?!

Few weeks ago the country’s Internet was blocked by the Congolese authorities. While the Internet by satellite was reopen 3 to 5 days later, the mobile Internet was still blocked three weeks later.

The reason to block Internet access was of course security issues according to the government. They probably had in mind what happened in Egypt and other Arab countries during the Arab spring. However, they need to remember that in Egypt the penetration rate of mobile phone is more 112% compare to around 20% in the DRC ! In those 20%, how many have smartphones ? And in those having smartphones how many were demonstrating in the streets ?  In my opinion, the excuse used was poor and definitely not the real one. Maybe they wanted to hide something…

But I digress, this is not a political blog…

In this country, most people use their smartphones to access the Internet. I am personally using my phone 3G connexion as a modem…

During the unrest, the government spokesman ask the population not to worry and to continue their routine because everything was fine !

Can banks, telecoms, universities, travel agencies etc continue working as usual without an Internet connexion !? Probably 30 years ago but not anymore Mr. Minister. It gives us an idea on how our different ministries operate… 

But remember this is not a political blog but this stupid decision has had a huge impact on the economy as you can imagine. For example, banks were not able to connect with the Central Bank for several days, which means that most banking transactions were impossible to perform.

A customer of mine who could not received emails had to cross the river to the other Congo to print a document and bring it back to Kinshasa for his suppliers. Renting the boat + visa cost for him was around USD 400 (this excludes the time lost).

There are so many start-up created by young Congolese that are using social media such as Facebook to communicate with their target market that are losing money everyday because the Internet may be back but still no facebook, Twitter, instagram etc. To use them you need to have a VPN installed and not everyone knows about VPN (most of them are only free for a trial period anyway).

That makes me wonder how many people will read this article as it is usually shared through those social media L

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 ...

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.  

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…