This optimism transpired into the economy in a form of increased real growth, which saw an upswing from 7.1% (2012), 8.5% (2013) to 9.2% (2014). In 2015 DRC will mark its 13th consecutive year of economic expansion.
This is not to say that the road to prosperous outlook has been smooth. Only in 2009 DRC was strongly affected by the worldwide economic crisis, its fiscal position deteriorating rapidly, shrinking economic growth to half of its 2008 level. The two main drivers of DRC’s growth, infrastructure and mining, were hit hard by stagnating exports.
What is particularly notable in the circumstance of DRC is how quickly it came out of recession and regained superfluous growth. Given the country’s ability to rejuvenate with such astounding pace the current economic slowdown in Europe and Asia may have a lesser effect on DRC, giving investors some encouragement.
The current business climate in DRC is confident. However, it is subject to the fragile domestic political stability and security. Given president Kabila’s predisposition to cause social unrest, which was demonstrated during the January’s civilian protest against his rule, followed by Government’s ruthless repression through which UN MONUSCO recorded killings of civilians, the optimism must be treated with caution.
Economically speaking, president Kabila shows more sincere intentions. The African Economic Outlook underlines that DRC’s careful macroeconomic policy combined with significant focus on the export revenue resulted in strong performance – inflation remains below 2% and depreciation of Congolese Franc (CDF) against the dollar is only very mild. In January 2016 it is trading at 928CDF to the dollar, only slightly below its 8-year (2007-2014) average.
To understand the opportunities and threats underlying DRC’s economy it is essential to look at the markets of its key mineral exports : copper, tantalum, cobalt, diamonds and gold.
Copper is trading at $2.05 per pound a drop of 28.1% since May 2015. The tantalum (coltan) prices are falling on world markets. Tantalum ore, of which DRC has the largest reserves in the world, is in 52-week low trading at $122.4 per kilo - $58 less than in November 2014. Cobalt prices fell from $14 per pound in May last year to $10.1, a 52 week low and falling. Gold is on the rebound. An ounce costs today $1,156, but only at the start of the year it traded at $1300 while between 2011 and 2012 it was valued at $1800. Its overall drop is staggering. De Beers, diamond giant, reported a 23% decrease in profits in the first 6-months of trading in 2015 while crude oil stands at $31.7 per barrel and is in its 5-year low.
On the whole the prices of main DRC commodities are falling, and considerably so. One reason why the situation may not improve quickly is the falling demand from China, which is set to embark on its first economic slowdown. The luxury spending of Hong Kong and Macau residents have also diminished, which some experts blame on a scare created by China’s determinant crackdown on corruption. The West provides a meager export-security.
What does it mean?
Despite the discouraging situation in the field of DRC’s exports, some analysts, including those at World Bank, show DRC’s prospects in a better light. The significant investments in the extractive sector are finally taking its toll – as export value drops DRC is able to extract more quantity, keeping a steady balance of trade.
The political and security situation remains fragile, but the sad reality of today’s Africa puts many alternative countries on the continent in a similar risk-zone. It is therefore not an achievement of DRC, but the deterioration of alternative business destinations in Africa that keep DRC profile competitive.
The strong efficiency gains and the enormous supplies of the mining industry may be sufficient to keep DRC from feeling the recession gloom. At the same time, a more somber sentiment to reliance on falling commodity prices may push Kabila’s government to expand other sectors of DRC’s economy, a good step to boost investor confidence.
Keeping inflation low, as it currently is, and emphasizing fiscal discipline may only help DRC further in its quest to remain cushioned from economic crisis.
So far the recipe seems to be working, but it is a delicate affair indeed.
By Mikolaj Radlicki