Democratic Republic of Congo
Democratic Republic of Congo
Index Trend Previous Quarterly Editions
Expropriation Risk: 69 Political Violence Risk: 89 87 Terrorism Risk: 35 Exchange Transfer and Trade Sanction Risk: 55 Sovereign Default Risk: 63
Risk Temperature 69 (Medium-High) +1
TREND ▲ ▲
On March 24 2020, President Felix Tshisekedi declared a state of emergency in response to the COVID-19 pandemic. At the time, the country had only recorded 48 confirmed cases, all of them in the capital Kinshasa, but it was clear from the experience elsewhere that the numbers would increase rapidly in the weeks ahead. The state of emergency, initially for 30 days, closed the country’s borders and imposed a near complete lockdown on Kinshasa, with a ban on all travel in and out of the city. These measures followed an earlier ban on all public gatherings, and a nationwide school shut down. However, even with these measures in place, the risks are great. The country’s public healthcare infrastructure is weak, and certainly lacks the capacity to respond to a large number of cases of acute respiratory distress. Moreover, public hospitals in some cities, including Kinshasa, are still recovering from the major outbreak of measles in 2019 that left more than 6,000 people dead, while hospitals in the East have been stretched by the latest Ebola epidemic, which was only declared over in early March 2020 after killing more than 2,600 people. The public health response will also be hampered by ongoing tensions within and between all levels of government. Even before the virus crisis emerged, tensions had been growing between President Tshisekedi and his predecessor Joseph Kabila, who remains highly influential and now describes himself as the country’s ‘moral authority’. This is already affecting the COVID-19 response, with Kabila criticising Tshisekedi’s recent creation of a national COVID-19 Task Force that is housed within his Office of the President. More generally, the governors of the DRC’s 26 provinces have already begun to act independently of the central government in Kinshasa. They are entitled to do so, as the decentralisation process of 2006-2008 devolved responsibility for public health to the provincial level, but this is setting up new antagonisms. Nevertheless, there are some glimmers of hope. In late February 2020, an IMF team visited the DRC to evaluate the country’s recent economic performance and assess its macro-economic outlook. Their findings were generally positive, noting that the currency was stable, inflation under control, and growth reasonably steady given falling commodity prices. More importantly in the context of the pandemic, the country has been through several major epidemics in recent years, and so the current situation is generating far less panic than it is elsewhere. In addition, the fact that the DRC has one of the youngest populations in the world, with a median age of 18.8 years, may be significant for an epidemic which appears to largely spare young people.
Expropriation Risk 69 (Medium-High) TREND ▼ ▼
Before leaving office, Kabila pushed through changes to the country’s 2002 mining code which raised tax rates on mining profits, doubled the mandatory stake that all mining projects must give to the state to 10%, and added a new 50% windfall tax that takes effect when mineral prices rise more than 25% above those used in a project’s feasibility study. Following Tshisekedi’s rise to power, it was hoped that he might begin to overturn some of these revisions. However, his initial stance, shared by his Minister of Mines, Willy Kitobo Samsoni, was to avoid any mention of Kabila’s changes. More recently, however, the government has been trying hard to present the country as friendly to the mining sector. In February 2020, Tshisekedi led a large and extremely high-powered delegation to the industry’s main international convention, the Mining Indaba in Cape Town. In the context of COVID-19, the government appears to have worked well with international miners as they move to ‘mothball’ their operations. The Ministry of Mines ordered a lockdown of many mines to protect local workers at the same time that the mining companies were withdrawing their expatriate employees on health grounds.
Political Violence Risk 87 (Very High) TREND ▼ ►
The DRC’s troubled eastern regions continue to experience widespread political violence, albeit of a low-intensity nature. In the face of increasing attacks against civilian targets, the Congolese Army (FARDC) has continued its offensive against the Uganda-born Allied Democratic Forces (ADF) in North Kivu Province. In February 2020, the ADF also carried out attacks into neighbouring Ituri Province for the first time, all of them focused upon civilian targets. In the same month, another rebel group, the Cooperative for Development of Congo (CODECO) escalated its own attacks in Ituri. Meanwhile, in South Kivu Province, Rwanda and Burundi continue to fight what is effectively a proxy war. Both countries are continuing to provide direct and indirect support to armed opposition groups based in the DRC, with the intention of destabilising their neighbour’s borderland areas. However, in more positive developments, in February 2020 an influential local Mai-Mai militia leader surrendered to the FARDC near Goma, along with 300 of his men, while in March 2020 one of the region’s major belligerents, the Patriotic Resistance Force of Ituri (FRPI), signed a peace agreement with the government.
Terrorism Risk 35 (Medium-Low) TREND ► ▲
Despite claims from the Islamic State that the ADF is now operating as part of its organisation, there is no convincing operational evidence that this is the case. The ADF is the oldest and most enigmatic of the armed groups active in eastern DRC and, while its leaders are Muslim, they seem to have developed and internalised very different views from those of IS. At present, it seems unlikely that the ADF has any immediate intention to switch its focus to the types of international targets that IS favours.
Exchange Transfer and Trade Sanctions Risk 55 (Significant) TREND ► ▲
The advent of COVID-19 makes it less likely that the international community will seek to broaden trade sanctions against the DRC over the short or medium term, even if Kabila’s ongoing influence does remain a concern. However, the epidemic will undoubtedly cause a major economic shock and one outcome may be a controlled devaluation of the currency, the Congolese Franc. In this context, there are increased risks around exchange transfers.
Sovereign Default Risk 63 ( Medium-High ) TREND ▲ ▲
The virus outbreak and falling mineral demand make economic contraction inevitable this year. Fortunately, the country’s commercial loan liabilities, most of which relate to a major Eurobond issue in 2007, are not up for refinancing in 2020. However, the country’s interest repayments on its concessionary loans may still put it into debt stress over the coming months. Furthermore, as the national economy comes under pressure, the government may choose to neglect these repayments and instead invest the money in a stimulus package on the grounds that a default is preferable to economic collapse. The major donors, led by the IMF and World Bank, are aware of the situation in the DRC and the need for debt relief, for which the DRC will almost certainly qualify.
