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Expropriation Risk: 73 73 73 74 ►Political Violence Risk:74 74 74 73 ▼Terrorism Risk:36 38 40 42 ▲Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:75 75 75 83 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Throughout the Cold War, the DRC was one of the Western powers’ main allies in sub-Saharan Africa, and this deep connection has continued since. Following the end of the Second Congo War (1998-2003), the DRC received massive support from the International Monetary Fund and World Bank, which for over a decade drove the country’s post-war recovery. The effects of these historic alignments continue to be felt. For example, during his tour of Africa in July, it was notable Russia’s foreign minister Sergei Lavrov did not visit the DRC, but stopped instead in neighbouring Congo-Brazzaville (the Republic of the Congo), which during the Cold War, had been the staunch ally of the Soviet Union.
More recently, President Felix Tshisekedi has signalled his alignment with Western-led environmentalist agendas. For example, at the 2021 COP26 international climate meetings, Tshisekedi and then-U.K. Prime Minister Boris Johnson jointly launched a major ten-year agreement to protect the Congolese forest (2021-31). USD500 million will be given in the first five years in new donor funding, aiming to cap the DRC’s forest cover loss at 2014-18 averages, and regenerating 8 million hectares of degraded forest area. The agreement also places 30% of the country’s natural areas into protected status. The DRC
stands to benefit greatly from a renewable energy transition, given its major reserves of cobalt and coltan, both of which are critical for electric vehicles.
The period of tenure of Tshisekedi’s predecessor, President Joseph Kabila, did see the DRC pivoting significantly towards Beijing, in particular following the signing of a USD6 billion infrastructure-for-minerals deal in 2008. However, even while the deal was being negotiated, it had become controversial, and in other ways politically fraught, becoming even more so over time. For example, in late 2021 it emerged in 2017, Kinshasa and Beijing had signed a secret amendment to the deal, which made the whole
arrangement much more favourable to the Chinese side.
The 2021 revelations led to a political and popular backlash, further complicating Kinshasa-Beijing relations and has resulting in several Chinese investments coming under increased scrutiny. In July, a court-appointed administrator suspended exports of cobalt from the China Molybdenum (CM)-run Tenke Fungurume cobalt and copper mega-mine, while claims are investigated that CM has been systematically underplaying the size of its reserves at the site.
TREND ►
As part of his wider consolidation of power, Tshisekedi has continued to strengthen his control over Gecamines, the state-owned mining company that has stakes in many of the largest copper and cobalt mines across the country. Having taken control of the Gecamines board last year from Kabila loyalists, Tshisekedi has continued to promote his people to the company’s most senior positions.
The ongoing row over CM’s reporting from Tenke Fungurume, in addition to its wider geopolitical implications, could result in a further consolidation of the president’s control of the state-owned mining company. Under the terms of CM’s contract at Tenke Fungurume, Gecamines retains a 20% stake in the mine’s operating company, which means if the allegations against CM are upheld, the company would be owed around USD5 billion in unpaid royalties. More radically, it could even result in CM being stripped of its licence, and the whole site operation being handed over to Gecamines, effectively nationalising the operation. This would, in effect, hand Tshisekedi loyalists direct control of one of the largest mines in the country.
Nevertheless, Tshisekedi remains committed to developing a business-friendly investment environment, following the DRC’s accession to the East African Community (EAC) trade bloc, in March 2022. The president also regards a predictable investment environment as crucial for maintaining stability ahead of next year’s presidential and parliamentary elections, and he will try to avoid any investment shocks ahead of those polls.
TREND ▼
Ongoing armed violence in the country’s eastern regions, which has increased steadily since the start of the COVID-19 pandemic, continues to present significant challenges for Tshisekedi’s government. There are now more than 300 armed rebel groups operating in the east, many increasingly emboldened by their control of vast networks of trade and regional smuggling. Throughout 2022, the deteriorating security situation has been further exacerbated by growing public distrust of the UN’s Stabilisation Mission in the DRC (MONUSCO), by a resurgence of eastern DRC’s largest rebel group, the ethnic Tutsi-dominated M23 Movement – which had been dormant for almost a decade – and by rising regional tensions, especially between the DRC and Rwanda.
The worst of the increase in violence has been focused in the long-troubled Ituri and North Kivu Provinces. For more than 20 years, insecurity within these provinces has been somewhat contained by the UN’s peacekeeping forces. However, there is growing public disquiet over MONUSCO’s failure to prevent the latest escalation – which resulted in January-August 2022 being the most violent months of the past decade, with more than 2,179 civilian deaths. In July and August, a series of public protests over MONUSCO’s perceived failures turned violent in North Kivu.
Moreover, following Kinshasa’s imposition of martial law in the region, in May 2021, the risk of spill-over violence into Uganda and Rwanda has increased, with the MONUSCO unlikely to continue to contain this. Kinshasa, meanwhile, accuses Rwanda, and to a lesser extent Uganda, of having already ‘taken the law into its own hands’ in this regard, by supporting the resurgence of M23. This has in turn raised regional tensions. The recent decision, of June 2022, by the EAC to deploy its own peacekeeping force to the region – the first contingent of which was deployed by Burundi, in August – should help to reduce tensions. However, this EAC force will have to be scaled up very quickly, if it is to have any decisive effect upon transforming the general security environment.
In 2021, the U.S. State Department reclassified the Allied Democratic Forces (ADF) as a designated Foreign Terrorist Organisation. The State Department referred to the ADF as ‘The Islamic State of Iraq and Syria-Democratic Republic of Congo’ (ISIS-DRC). Since then, both Islamic State (IS) propaganda and the ADF’s own online content have made increasing claims about its links between the group and IS affiliates in Syria and elsewhere. Despite these claims, the UN Group of Experts has found no evidence of any links between the ADF and any other IS affiliates.
Nevertheless, the U.S. designation does seem to have precipitated a shift in the ADF’s tactics. Late 2021 saw a significant uptick in the group’s use of suicide bombings and improvised explosive devices both in the DRC and in Uganda. In November, a series of such attacks killed at least four people in Uganda’s capital, Kampala. However, following those attacks, the Ugandan Army undertook a major counter-insurgency operation against the ADF inside the DRC itself, and this seems to have significantly reduced the group’s capabilities.
In 2022, the DRC continued its recovery from the COVID-related slump of 2020. The International Monetary Fund forecasts that GDP growth for this year will be around 5.9% and forecasts a further rise to 6.2% in 2023. In the past twelve months, this has been driven especially by increased copper production (the DRC’s largest export earner), and by a recovery of copper prices. This peaked in March – along with the prices of other base metals of aluminium, lead, nickel, and zinc – following the start of the Russia/Ukraine crisis. However, prices have fallen back in recent weeks, threatening the DRC’s still-fragile recovery.
Nevertheless, the DRC’s outlook remains strong over the medium-term. This is as the country begins to see the benefits of the nascent electric vehicle revolution which is driving increased demand for cobalt and coltan, with the country holding 70% and 60% of the world’s cobalt and coltan reserves, respectively.
The country’s commercial loan liabilities, most of which relate to a major Eurobond issue in 2007 of USD454 million, are not up for refinancing in 2022. In addition, the country currently has a debt-to-GDP ratio of just 15.2%, making it one of the least-indebted African countries.
However, external debt accounts for over 65% of public debt. Most of this is owed to multilateral donors, especially the International Monetary Fund (IMF), which since COVID-19’s advent has extended emergency finance to the country, including the Fund’s Catastrophe Containment and Relief Trust. With relations between the IMF and DRC slowly improving after several years of difficulties, the multilateral community is unlikely to withdraw these kinds of mechanisms.
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