Previous Quarterly Editions
Expropriation Risk: 75 76 74 72 Political Violence Risk: 86 87 85 87 Terrorism Risk: 35 35 35 35 Exchange Transfer and Trade Sanction Risk: 60 58 58 56 Sovereign Default Risk: 62 62 59 57
TREND ▼ OUTLOOK ►
Much of the international community, including Washington, Brussels and the UN itself, has hailed the recent election season in the Democratic Republic of Congo as a great success. It is being widely presented as a final turning point in the country’s transition from several decades of armed conflict to a more peaceful and democratic future. However, while it is certainly true that the election season, which began with the long-delayed presidential poll on December 30 and culminated in provincial governorship elections in early April, passed off without the widespread violence that had been widely predicted, it is not clear that it represents a new future for the country. There is growing evidence that all the recent elections, not just the presidential one, were heavily rigged and subject to highly fraudulent counts. The implication is that President Joseph Kabila’s allies intended to keep him in a strong political position even as he was eventually forced from office by public opinion. The Electoral Commission (CENI) announced Felix Tshisekedi, with whom Kabila had cut a deal, as the winner of the presidential election instead of Martin Fayulu, even though independent polling data showed Fayulu had won by a landslide. The success of Kabila’s coalition, the Common Front for the Congo (FCC), in winning more than two-thirds majority in the National Assembly elections is also viewed as suspect, and the FCC’s decisive majority in the senate elections and victory in 16 of the 22 provincial governorships is controversial at best. As a result, months after he stepped down as president, Kabila is in a stronger political position than ever and with the FCC’s senate majority he has the power to impeach and remove Tshisekedi at any time. In May, Tshisekedi accepted the FCC’s nomination of a Kabila ally as his new prime minister, but their failure to agree on a power-sharing arrangement meant that the country was still without an official government six months after the election and as concerns about the current Ebola outbreak are rising. The growing expectation is that Kabila will resume the presidency in due course, meanwhile continuing to be a destabilising presence in the country.
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Late in his presidency, 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 of the mandatory stake that all mining projects must give 10% 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. Kabila appeared determined to implement these revisions in their entirety. However, the incoming administration of Tshisekedi has appeared much more ambivalent about the revised codes. Following a series of meetings with mining leaders, including Glencore CEO Ivan Glasenberg, the new president spoke about the importance of ‘ongoing dialogue’ between government and extractives companies around the code’s implementation, and about the need to be ‘attentive’ to the needs of mining companies. Tshisekedi is keen to build investor confidence ahead of a 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.
TREND ▲ OUTLOOK ▲
The election of Tshisekedi as president has done much to quell fighting between the Congolese Army (FARDC) and anti-government forces in the Kasais, as the Kasai region is Tshisekedi’s home area and political base. However, the security situation in the east continues to deteriorate. A series of large-scale anti-insurgency operations by the FARDC and the UN’s peacekeeping mission (MONUSCO) have disrupted the largest militia groups in the region, but this has generated an even more fragmented and less predictable security landscape in which dozens of smaller armed factions now use force to pursue a wide range of economic, political and ethnic agendas. In recent months, the situation has been greatly complicated by increasing interference from neighbouring countries. Rwanda and Burundi are now effectively engaged in a proxy war in South Kivu, with both sides providing both direct and indirect support to armed opposition groups that are intent on carrying out cross-border raids. Further north, in Ituri Province, the South Sudanese Army (SPLA) has intensified its military incursions into Congolese territory as it attempts to neutralise the ethnic-Kakwa warlord Thomas Cirillo. Meanwhile, in North Kivu, there is growing evidence of Ugandan engagement with Hutu extremist militias that are intent on overthrowing the regime in Kigali. These engagements are a response to Kampala’s concerns about Rwanda’s growing military influence in eastern DRC.
TREND ► OUTLOOK ►
Despite the many separate insurgencies underway throughout the country, the risk of a terrorist attack on an urban target remains relatively low.
One aspect of the new mining code that companies are particularly keen to soften is the requirement to repatriate 60% of funds during the ‘investment return phase’ and 100% of funds thereafter. Funds repatriated in this way cannot be used to subsequently service foreign debt. The EU and US sanctions imposed on Kabila’s inner circle in the run up to the polls will not be extended, at least over the medium term, as the incoming Tshisekedi administration is enjoying a ‘honeymoon’ period and the international community is emphasising stability over further reform. The Trump administration remains opposed to broader trade sanctions against the DRC, due in part to Kinshasa’s long-time use of lobbying firms in Washington.
Talks began in February between the new administration in Kinshasa and the IMF over a new 3-year Extended Credit Facility programme, following up on Kabila’s request last year for increased economic assistance. The talks have been complicated by IMF concerns over the size of Kinshasa’s unpaid debts to international mining companies that could be close to ten billion dollars. Kinshasa can expect a high degree of goodwill as the international community celebrates the country’s first democratic transition, and economic assistance is likely to be forthcoming from the IMF and other international agencies during the early period of the Tshisekedi government.
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