Congo Premier Bullish on Growth Even as Commodities Slump

  • Low inflation, cautious fiscal policy seen protecting economy
  • Government trimmed 2015 growth forecast on oil, copper prices

The Democratic Republic of Congo’s prime minister said he’s confident the economy can grow 9 percent in 2016, even as African neighbors slash their forecasts amid a slump in global commodity prices.

A stable Congolese franc, low inflation and cautious fiscal policy are protecting the country from sustained drops in the prices for copper and oil, two of its major exports, Augustin Matata Ponyo said in a Dec. 17 interview in the capital, Kinshasa. Such stability is “sending positive messages to the market,” he said.

Augustin Matata Ponyo
Augustin Matata Ponyo
Photographer: Federico Scoppa/AFP via Getty Images

“If we do 7.7 percent this year, what will prevent us doing 9 percent next year?” said Ponyo, who served as finance minister from 2010 to 2012. “We have to be optimistic; we are in command.”

The government of Africa’s biggest copper producer in November lowered its growth forecast for 2015 to 7.7 percent from a previous estimate of 8.4 percent as metal prices tumbled. The country is rebuilding after being shattered by two civil wars that ended in 2003 and killed more than five million people.

Forecast Trimmed

The World Bank has trimmed Congo’s 2016 forecast to 7.3 percent, a rate Ponyo said was too pessimistic. Local commentators, such as members of Congo’s main industry federation, say the government may be underestimating the country’s potential difficulties.

Other regional economies have been hit harder. Neighboring Zambia, the continent’s second-largest copper exporter, two weeks ago lowered its forecasts to 3 percent for 2015 and 4 percent for 2016. Its currency, the kwacha, has lost 42 percent of its value against the dollar this year.

Copper, which has dropped 26 percent in 2015 to six-year lows, traded at $4,660 a metric ton in London on Dec. 18. Brent crude-oil prices have slumped more than 60 percent since June 2014 to below $40 a barrel, reaching the lowest levels since 2008.

Congo’s annual inflation will end 2015 at just 0.8 percent and the franc is trading at 927 to the dollar, down from 932 francs at the start of the year and only slightly less than the black market rate of 933.50, according to statistics published Dec. 10 by the premier’s office. Foreign exchange reserves are under more strain, having fallen from $1.65 billion at the end of 2014 to $1.5 billion, leaving Congo with 6.2 weeks of import cover.

Reserves Level

The International Monetary Fund in August warned that current low levels of foreign-exchange reserves leave Congo’s economy vulnerable. The country is preparing to sell almost $1 billion of bonds on international markets for the first time next year to invest in projects that will help boost economic growth, Ponyo said.

Companies in the Federation des Entreprises du Congo, the country’s biggest private-sector body, are less bullish about growth than the government. They’ve seen turnover drop by as much as 30 percent in November compared with the previous year, according to Michel Losembe, president of the Congolese Banking Association. “In the current economic climate, growing at 9 percent next year will be a challenge,” he said Dec. 19 by phone from Kinshasa.

Baar, Switzerland-based Glencore Plc in September suspended production at its Katanga Mining Ltd. copper project in southeastern Congo for 18 months to invest in new facilities to lower production costs. The following month, Ponyo said that the shutdown would cost the government 200 billion francs ($215 million) in lost revenue over the next year. Katanga Mining produced 15 percent of the country’s copper in 2014 and in 2013 declared $298.8 million in taxes to government.

Ponyo said he doesn’t expect further shutdowns as other copper projects in the country have lower production costs and remain profitable at current prices. Any shortfall in revenue from the mining industry, which represents about a quarter of GDP, will be made up for by new investments in other industries, including two $350 million cement plants due to start production in 2016, he said.

Standard Bank’s chief executive officer in Congo, Eric Mboma, said he still sees a lot of investor appetite, particularly from China, though he’s concerned that reduced mining revenue will hurt the economy. “Growth is still around but I am closer to the World Bank’s projections,” he said Dec. 18 by phone from Kinshasa.

Map: Democratic Republic of Congo
Map: Democratic Republic of Congo
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