- Currency has fallen 2.3% this year after being stable in 2015
- Black-market, dollar airtime rates signal franc slump
Mobile-phone airtime touts on the streets of the Democratic Republic of Congo’s capital have accepted what analysts reckon is inevitable -- the franc is going to fall further.
The currency of Africa’s biggest copper producer has weakened 2.3 percent this year to 949 against the dollar, after trading little changed all of last year, central bank data shows. With the drop in copper and oil prices reducing the supply of foreign exchange, analysts including Glenn Tshiany, head of global markets at Standard Bank Congo, reckon it’s only a matter of time before it hits 1,000.
The franc is already changing hands at 978 per dollar on the parallel market on the streets of Kinshasa. Traders who sell mobile credit to pedestrians in the city have been selling $1 of air time at 1,200 francs for the past two weeks, said Anderson Katende, a trader at an Airtel kiosk on Ave Lt.-Colonel Lukusa.
Air-time rates in Kinshasa are “a leading indicator in this market of where things will eventually go,” Tshiany said by phone from the city. “In the next month, I definitely think we will reach 1,000. The central bank rate is lagging from where the market is currently trading.”
In one transaction last week on the main money-changing avenue, known locally as Wall Street, traders sold $200,000 at 990, according to Jean Kadima and Flory Mayanga, who are street traders in the capital.
Economic growth driven by a boom in commodity prices, coupled with a prudent fiscal policy, have enabled Congolese Prime Minister Matata Ponyo Mapon to keep the franc between 910 and 930 to the dollar since 2011. Presidential elections are scheduled for November and a depreciation in the franc risks eroding civil servant salaries and public spending power at a critical moment for the ruling coalition.
Since January, the central bank has made successive attempts to protect the franc. It’s twice sold $50 million at auction to help commercial banks meet unfulfilled dollar orders. In March, it instructed mining and oil companies to pay taxes in dollars rather than francs and increased the reserve requirements for commercial banks on franc deposits. Last week, it temporarily suspended the payment of value-added tax reimbursements in a move it said would ease short-term pressure on the local currency.
The intervention has eased pressure on the franc, but the currency is unlikely to stabilize or strengthen until there’s a sustained increase in copper and oil prices, said Willy Mulamba, head of global markets at Citigroup Inc.’s Congo unit. The price of copper has fallen 18 percent over the past year, while oil is down 27 percent. Congo produced 995,805 metric tons of copper last year and pumps about 25,000 barrels of oil per day.
“In the short run, amid uncertainties of any copper, oil price pick-up and the continuous scarcity of foreign currency, the local currency rate is likely to hit the bar of 1,000 franc to the dollar,” Mulamba said in an e-mailed response to questions.
At least 80 percent of bank deposits in the Congo are in dollars, but the Congolese franc is the trading currency for the majority of Congo’s 75 million people. The fall in its value has already seen the cost of key food staples in Kinshasa increase.
The government has said it will continue to protect the franc, but the gradual erosion of its own reserves is limiting its options. Foreign-exchange reserves stood at $1.18 billion on April 21, equivalent to 5.2 weeks of import cover, compared with $1.5 billion at the start of the year, according to the prime minister’s office.