Index Trend Previous Quarterly Editions
Expropriation Risk: 6 66 ► Political Violence Risk: 60 ► Terrorism Risk: 35 ► Exchange Transfer and Trade Sanction Risk: 64 ▼ Sovereign Default Risk: 75 ►
Risk Temperature 66 (Medium-High -2)
TREND ▼
President Denis Sassou Nguesso was re-elected for a fourth term after a landslide victory in the first round of the March 2021 presidential election, securing 88.57% of the vote. In the short term, there are no foreseeable political threats to Nguesso’s presidency. His immediate governing priorities will be improving the beleaguered economy, including rescheduling debt payments with private oil traders, receiving much-needed loans from the International Monetary Fund (IMF), ensuring fiscal prudence and boosting public revenues.
The president is finalising his next five-year National Development Plan (PND 2022-2026) in his efforts to diversify the country’s economy away from its dependence on the energy sector. He aims to revive the economy to achieve above 2% growth in 2022, after the economy contracted by over 3% in 2020 and by 1% in the first half of 2021. The country is in a precarious financial situation with public debt ratio at about 91% of gross domestic product (GDP), which is over the 70% threshold of the regional bloc the Central African Economic and Monetary Community (CEMAC).
At present, the country is seeking support from France to help plug its 2021 budget deficit of XAF300bn (USD540mn). The success of the new PND 2022-2026 will depend largely on the country’s continual receipt of external financial support to fill its budget deficit, as well as the resumption of the IMF economic and financial programme, which is contingent on the successful renegotiation of loans owed to private oil traders.
Expropriation Risk 66 (Medium-High) TREND ►
With public finances under strain, the government has the tendency unilaterally to revise contractual arrangements. Over the years, cases of expropriation have been rare in the country. The government is more likely to cancel contracts of companies in the infrastructure and mining sectors for poor delivery. In 2020, the government cancelled mining concessions of some foreign companies for repeated delays in starting operations.
COVID-19, together with the slump in the crude oil price, has rolled back some of the modest pre-pandemic gains which saw growth rise to 1.6% in 2018. It has also set back some major infrastructure projects. The most notable to have suffered delays include the USD83mn agro-industrial zones to be funded by the African Development Bank (AfDB) and the USD550mn Brazzaville-Kinshasa road-rail bridge, with the AfDB already having provided USD210mn of the overall estimated costs.
The government is undertaking public sector reform to fight corruption, increase the tax base and enhance financial prudence. It has finally appointed members of the country’s first anti-corruption agency, the High Authority for the fight against Corruption (HALC) and audited the state-owned oil company (SNPC). These moves are attempts by Nguesso to show that his government is committed to fiscal discipline and stopping public funds being wasted. Nonetheless, the IMF and key development partners such as France want to see sustained commitment, such as the HALC's independence and auditing the SNPC annually.
Political Violence Risk 60 (Significant) TREND ►
Political violence has plummeted following the imprisonment of General Jean-Marie Michel Mokoko and the signing of the ceasefire and cessation of hostilities agreement in December 2017 between the government and Frédéric Bintsamou, alias Pastor Ntumi, who waged a rebellion to oust Nguesso from power.
Since the agreement was signed, armed attacks by Ninja rebels have ceased, leading to the reopening of the road between the capital Brazzaville and Pointe-Noire, the port city and hub of the oil industry. Key elements to prevent a return to hostilities are the successful implementation and execution of the ‘reintegration’ component of the disarmament, demobilisation and reintegration programme.
However, the peace in the Pool region remains fragile as Pastor Ntoumi and his 7,500 ex-combatants are unhappy with the government’s handling of their compensation and socio-economic reintegration. Pastor Ntoumi has yet to engage fully into mainstream politics and his non-engagement in the presidential election raises questions over whether he is fully at peace with the government. Although a return to a full insurgency is less likely, leaders in the Pool region could provoke some violence to pressure the government to do more for their region and ex-combatants.
Terrorism Risk 35 (Medium-Low) TREND ►
There are instances of attacks by pirates both offshore and in Pointe-Noire anchorage area. In January 2021, three intruders boarded a Cyprus-flagged container ship, prompting the crew to retreat into the citadel. Anchored container ships are increasingly targeted by robbers seeking to steal ships’ stores and escape.
Exchange Transfer and Trade Sanctions Risk 64 (Significant) TREND ▼
As a CEMAC member, Congo’s foreign exchange regulation is directed by the bloc’s regional Central Bank of Central African States (BCEA). A new foreign currency exchange regulation came into effect in March 2019, which requires companies in Congo to seek BCEA authorisation before opening offshore current accounts. Firms also must seek renewal every two years of the permission to maintain foreign currency accounts in the CEMAC area. The new regulation has increased to within 150 days (up from 30) the period for repatriation of exportation proceeds above 5 million Central African francs (approximately USD9,203) into a certified commercial bank
However, resident mining and hydrocarbons companies are exempted from the new regulation until December 31, 2021, given the disruption due to COVID-19. The regulation raises various risks including for onshore bank credit, currency convertibility and transferability, and for exchange rates. Together with a stricter enforcement of foreign exchange regulations, this is seeing stronger accumulation of net foreign assets at the BCEA than initially anticipated.
There are no emerging sanctions risks at present. The only challenge is the pressure from the IMF to renegotiate debts from oil trades; failure to do so would lead to the IMF refusing to give out a loan.
Sovereign Default Risk 75 (High ) TREND ►
According to the IMF, Congo’s public debt is “unsustainable”, even though the government has renegotiated its debt with China (2019) and with the Orion Trading Company and Trafigura. The government faces IMF pressure to conclude renegotiation of its debt of about XAF965bn (about USD1.8bn) with all its private external creditors, notably oil traders. The debt renegotiation was meant to have been concluded in December 2020 with all oil traders; however, negotiation with Glencore is still ongoing and proving challenging. The IMF has conditioned the disbursement of a second tranche of the USD448.6mn three-year Extended Credit Facility arrangement to the successful conclusion of the debt renegotiation with traders.
Overall, Congo has a poor credit track record, having twice defaulted on its outstanding USD363mn Eurobond. In 2016, administrative issues reportedly caused the government to miss a scheduled coupon payment, which was subsequently paid two months late. Also, a legal order filed by a local construction company intercepted a USD21mn coupon from reaching bondholders. The firm claims that it was owed by the government USD1bn in arrears dating back to 1992.
Congo’s public debt exceeds the CEMAC region’s 70% debt-to-GDP ratio limit; newly appointed Congolese Prime Minister Anatole Collinet Makosso noted in August 2021 that the country’s current public debt stands at 91% of GDP, a gradual decrease compared with 105% of GDP in 2020. The gradual reduction in the public debt has come from cuts in public expenditure, with a 7.5% cut envisaged in the revised 2021 budget, according to Makosso.
High debt service also continues to present challenges. The country’s 2020 budget used a benchmark global oil price of USD55 per barrel, leaving insufficient room for a shock in the global market. Debt restructuring would prove essential to restore Congo’s fiscal space for economic development in the short to medium term.
