The mining sector underpins a solid outlook

After a slowdown in activity associated with the fallout from the COVID-19 pandemic, the mining sector bolstered growth in 2021 and is expected to remain the main contributor to the acceleration inactivity in 2022. Net exports will support growth thanks to cobalt and copper (about 85% of merchandise exports). With prices for these ores expected to remain high, production and exports are set to increase. Copper production will be driven by the expansion of the Kamoa-Kakula mine, which produced its first concentrates in mid-2021 and could become the second-largest copper mine in the world. Despite an uncertain operational and political environment, the favorable global demand outlook for these ores, which are critical to the energy transition, should continue to attract private investment, particularly from China. Gross fixed capital formation should also be supported by increased public investment, particularly in infrastructure, aimed at achieving the objectives of the National Strategic Development Plan (PSND). Thanks to a relatively more stable Congolese franc, inflation should continue to ease gradually in 2022, supporting private consumption, whose contribution to growth will nevertheless be constrained by the large share of the population living below the poverty line (over 70%). Furthermore, with less than 0.5% of the population vaccinated against COVID-19 at the end of 2021, consumption could be further restricted in urban areas. A potential resurgence of the Ebola virus and the precarious security situation in the east of the country could also constrain consumption. 

Twin deficits reduced thanks to mining revenues

In 2022, the budget deficit is expected to continue to narrow, benefiting from robust growth in government revenues. Domestic activity should support tax revenues, including VAT and income tax, while mining revenues, which account for about one-third of the total, will benefit from increased exports. The three-year ECF program agreed with the IMF in July 2021 for about USD 1.5 billion, the first such facility since the previous one was terminated in 2012, will also aim to accompany reforms to improve domestic resource mobilization. Government revenues represent barely 10% of GDP. On the expenditure side, in line with the objectives of the IMF program, the authorities have announced that they want to rationalize the wage bill, which absorbs about 60% of revenue, to prioritize health expenditure to meet health challenges, including Ebola and COVID-19. They also hope to be able to allocate more resources to capital expenditure to achieve the objectives of the PSND. The agreement with the IMF could act as a catalyst for concessional external support to finance the deficit, with the government committed to limiting the use of monetary financing. The low level of public debt limits the risk of debt distress, but the associated costs could quickly become unsustainable given the low tax burden.

In 2022, the current account deficit is expected to continue to narrow on the back of increased mining export earnings, which feed into the trade surplus. The services deficit, reflecting demand for services related to infrastructure and mining, may narrow as planned expansions are completed. Conversely, profit repatriation by foreign companies is expected to increase along with exports. Pandemic aid, current international cooperation and expatriate remittances from abroad will support the small surplus in the transfer account. Concessional credit and FDI are expected to finance the deficit. Export growth could help rebuild foreign exchange reserves, which remain low (about one month of imports at end-2021), despite the allocation of special drawing rights and the disbursement of the first tranche of the ECF program in 2021. An increase in reserves would also relieve some of the downward pressure on the Congolese franc.

A precarious political, social, security, and health environment

In December 2018, after two years of postponed general elections, and following an electoral process marred by numerous allegations of irregularities and violence, Félix Tshisekedi was declared the winner of the presidential election, marking the end of nearly 18 years with Joseph Kabila as head of state. While Mr. Kabila initially maintained his influence through a power-sharing agreement, the coalition was terminated by the president in December 2020. In April 2021, a 56-member "Sacred Union of the Nation" government led by Prime Minister Sama Lukonde was appointed, backed by a 24-party coalition of the same name that may struggle to stay together until the next general election, scheduled for late 2023. As the election - which could be contested by the three main candidates in the 2018 elections, namely Félix Tshisekedi, Joseph Kabila, and Martin Fayulu - draws nearer, tensions are likely to intensify. This would aggravate the precarious social climate, fuelled by widespread poverty, corruption, weak governance, and insecurity. On the security front, armed militias continue to clash in the east of the country, particularly over control of natural resources, despite the imposition of martial law in May 2021 in Ituri and North Kivu provinces. In North Kivu, the government announced a new outbreak of Ebola in October 2021, five months after the end of the twelfth epidemic. Social, political, security, and health instability contribute to a very challenging business climate.