DR Congo Heading For An Economic Slowdown

The economy of the Democratic Republic of the Congo (DRC) is heading for a slowdown. We believe this for three main reasons:

1. The deteriorating security situation. The Congo is still recovering from a series of wars that killed about five million people. While a return to the anarchy of the late 1990s in unlikely, we expect tensions to remain high.

A recent peace deal, in which neighbouring Rwanda and Uganda promised not to support armed groups in the DRC (something they currently deny doing), is unlikely to change this.

While fighting is likely to remain contained in the east of the DRC, this still deters investment and diverts government spending away from dealing with pressing developmental challenges (the government has spent over US$400mn since April 2012 in its failed attempts to contain the M23 rebellion).

2. A difficult business environment. The DRC is an incredibly difficult place to do business, and is ranked among the most corrupt countries in the world. In 2012, the IMF cut off aid over a deal whereby the government gave prime mining land to an Israeli diamond billionaire who has close ties with President Joseph Kabila.

The government has promised to release a new mining code, but has yet to produce a draft. Meanwhile, investors are shying away from new projects.

Most of the DRC is impassable jungle, and the country has some of the worst infrastructure in the world. Land travel across the DRC is said to be less efficient than at the time of independence, making business dependent on expensive rental flights and exporting goods via neighbouring countries.

3. China’s economic rebalancing. The DRC’s post-war boom has been largely based on surging copper exports, which have mostly gone to China – the People’s Republic accounts for 48% of Congolese exports.

As the Chinese economy slows and the construction sector’s demand for copper falters, the DRC will look less attractive as an investment opportunity.

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