Previous Quarterly Editions
Expropriation Risk: 76 74 72 71 Political Violence Risk: 87 85 87 88 Terrorism Risk: 35 35 35 35 Exchange Transfer and Trade Sanction Risk: 58 58 56 54 Sovereign Default Risk: 62 59 57 56
TREND ▼ OUTLOOK ▲
President Felix Tshisekedi is still struggling to establish his legitimacy. He came to power in early 2019 following polls that were widely condemned as fraudulent, and which may well have involved a secret power-sharing deal with the outgoing president, Joseph Kabila. Aware of the resulting lack of credibility, in recent months Tshisekedi has engaged in strenuous efforts, both at home and abroad, to shore up his support. These have included higher pay for public sector workers, a major programme of public works and, most recently, the promise of free basic education for all. However, while popular, these efforts may ultimately be undermined by the deep and widening rift between the Tshisekedi and Kabila camps. In June, Kabila’s supporters used their control of the country’s constitutional court to prevent 33 newly elected MPs, including 23 opposition MPs, from taking their seats. Members of Kabila’s coalition, the Common Front for the Congo (FCC), then blocked a series of appointments Tshisekedi had made to Gecamines, the state mining company, and the National Society of Railways of Congo (SNCC). Such was the level of anger at these various moves within Tshisekedi’s own party, the Union for Democracy and Social Progress (UDPS), that they resulted in UDPS activists attacking FCC sites in Kinshasa, Lubumbashi and Mbuji Mayi. Unless Tshisekedi can find a way to defuse these tensions, which in practice would mean defusing the anger of his supporters at the way in which Kabila has retained effective control of the government, then there is a danger that this unrest could spread further and intensify. Final approval of a new, relatively inexperienced cabinet at the end of August in which the FCC is heavily represented will not help. Meanwhile, the economy continues to suffer from the fall in prices for metals, particularly cobalt, as a result of softer Chinese demand. Despite the bold promises he made while campaigning, the new president has also done little to transform the security situation in the troubled eastern provinces. These are now grappling with an Ebola outbreak that is already the second most deadly in history. However, preliminary results released in August by the WHO from clinical trials of a new combination drug therapy suggest that it may be able to reduce mortality rates from 70% to as low as 6%.
Before leaving office, Kabila signed controversial changes to the 2002 Mining Code that significantly redrew existing mining contracts in the state’s favour. The changes included higher taxes on mining profits, a doubling to 10% of the mandatory stake that all mining projects must give to the state, increased royalties on all metal production, and a new 50% windfall tax that takes effect when mineral prices rise 25% above those used in a project’s feasibility study. With his successor making no move to overturn these revisions, the question now is how they will be implemented. President Tshisekedi has proved ambiguous, promising voters that he will ‘clean up’ the country’s extractive sector while telling mining leaders that he will ensure a ‘win-win’ outcome from the new provisions. Recent speeches about the importance of foreign direct investment in the sector have encouraged some firms. However, Glencore announced in August that it was suspending production at Mutanda, one of the largest cobalt mines in the world, in part because of the uncertainty surrounding the mining code revisions. Taxes from that mine provide roughly 10% of the government’s income, which will need to be made up. The treatment of the mining sector is being watched closely ahead of the licensing round for 20 onshore oil and gas blocks due later this year. The DRC has up to five billion barrels of oil reserves in various locations from the Atlantic coast to the lakes in the eastern provinces, and Tshisekedi is keen for investment to develop these assets.
TREND ▲ OUTLOOK ►
Although the Kasai region is Tshisekedi’s home area and his political base, his approach to security in the region has proved no more successful than Kabila’s. Meanwhile, the increased involvement of neighbouring actors continues to further complicate the eastern security situation. Rwanda and Burundi are now effectively engaged in a proxy war in South Kivu, with both sides providing direct and indirect support to armed opposition groups that are intent on carrying out cross-border raids. In June, it emerged that at least two battalions of the regular Rwandan Army (RPDF) had joined this struggle, apparently with Tshisekedi’s consent.
TREND ► OUTLOOK ▲
Despite the many separate insurgencies underway throughout the country, the risk of a terrorist attack, as usually defined, has historically been low. However, there is growing evidence that one of the eastern DRC’s largest armed groups, the Allied Democratic Forces (ADF), are becoming aligned with the global Islamic State ‘brand’. In April, IS-controlled media outlets claimed responsibility for an ADF attack on an army base in the remote Beni region of North Kivu Province. Were these links to grow substantially, the risk that the ADF would seek to attack targets with international connections may eventually increase.
TREND ▼ OUTLOOK ▼
The EU and US sanctions that were imposed on Kabila’s inner circle in the run up to the 2018 election have not been extended, and there is currently no desire among the international community to hamper the Tshisekedi administration while it is still becoming established. The Trump administration remains opposed to broader trade sanctions against the DRC even given Kabila’s continuing influence, due in part to Kinshasa’s long-time use of lobbying firms in Washington.
TREND ▼ OUTLOOK ►
Talks continue between the new administration in Kinshasa and the IMF over a new three-year Extended Credit Facility programme. Tshisekedi has been doing all he can to reassure the Fund, promising new anti-corruption measures and even a full audit of Gecamines. However, the IMF is concerned by the size of Kinshasa’s unpaid debts to international mining companies, which could be close to ten billion dollars. While the Tshisekedi administration still enjoys a high degree of goodwill from the international community, it will eventually have to back up its promises with concrete actions in order to access any significant amount of international financial help.
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