Republic of Congo: Risk Assessment
Country Risk Rating
Business Climate Rating
- Abundant natural resources (oil, iron ore, potash, phosphates, wood); agricultural potential
- Potential economic diversification with opening of free-trade zones
- Heavy reliance on oil and gas, and on China
- Lack of infrastructures; lag in poverty reduction
- Poor business climate and weak governance
- Lack of transparency in terms of its debts; uncertainties about interest payments
Growth Still Highly Reliant on Oil and Gas and China
After two years of recession, growth is set to return in 2018 under the stimulus of increased oil and gas production, bolstered by higher prices. The increase in production from its two new Moho Project (Total & Chevron) and Banga Kayo (Wing Wah Petrochemical) oil and gas fields should bring output up to 300,000 barrels per day (b/d) in 2018 from 238,000 b/d in 2016. The launch of a free-trade zone in the Pointe-Noire region, financed by China and due to be inaugurated at the 2018 China-Africa Summit, is expected to improve the diversification of the economy around the petrochemical, tourism and agri-food products sectors. Growth will, however, continue to be limited by infrastructure deficiencies, including namely the rail connection between the economic capital, Pointe-Noire, and Brazzaville, which ended in late 2016 following the collapse of two bridges. China, the Congo’s leading economic partner, is playing a principal role in infrastructure investments (new hydroelectric dam near Liouesso, inaugurated in May 2017).
The slowdown in growth in China itself could lead to a reduction in these investment flows, thereby limiting the financing options for the Congolese government, which is already subject to severe budgetary pressures. Looking at consumption, the government’s efforts at budget consolidation, in the context of negotiations with the IMF, are likely to impact on domestic demand. Inflation is expected to hold relatively steady in 2018, continuing below the target rate of 3% set by the BEAC (Bank of Central African States).
Slow Improvement in the Twin Deficits
The financial situation of the Congolese government has declined significantly over the last three years, hit by falling raw material prices: the main source of government income. The government’s commitment to continue with its infrastructure investment programme, despite the sharp drop in its revenues, has resulted in a mushrooming of public debt. The deficit has been largely financed by drawing on foreign exchange reserves, which are now at a very low level (three and half weeks of imports in July 2017), undermining the country’s ability to pay. Measures aimed at cutting current spending (exposure of fictitious jobs, controls on bonuses for ministers, restrictions on traveling) helped reduce the deficit in 2017. The current round of negotiations with the IMF, with the aim of enabling the Congo to join a new Fund programme, is grounds for hope for a further improvement in the public accounts in 2018.
There is continuing uncertainty, however, relating to the repayment of the debt following a temporary default by the Congo on its Eurobonds in July 2017. This default arose following a court-ordered freeze on funds allocated for interest payments, as part of a dispute between the Congo and the Commisimpex construction consortium. The company is claiming USD 1.1 billion against unpaid infrastructure work, and – if a settlement to the dispute is not reached –the danger of another freeze on the transfer of debt interest payments in the future remains.
In terms of external accounts, there is a large deficit (58% of GDP in 2016) in the balance of trade in goods and services. Increased oil and gas production in 2018 should stimulate exports and help achieve a substantial reduction in the current account deficit. This latter is being partly financed by indirect foreign investments and other net investments (10% of GDP in 2016).
President Strengthens Grip on Power in Context of Serious Social and Security Tensions
Following his re-election for a third term of office in 2016 in a challenged election, President Sassou-Nguesso’s grip on power was strengthened in the parliamentary elections of July 2017. His party (Congolese Party of Labour) won 90 out of the 151 seats in the Assembly, in addition to the ten seats won by his allies. The opposition (Union Panafrican for Social Democracy, and the Union of Humanist Democrats) is split and won a total of approximately ten seats.
The social context remains extremely tense, with protests by government employees triggered by late payments of wages. In addition, there has also been a renewed deterioration, since April 2016, in the relations within the Pool region, adjoining Brazzaville, between security forces and former rebel soldiers, who are supporters of Pastor Ntumi.
Relations with the neighboring Democratic Republic of the Congo are likely to remain precarious as a result of rising political instability in the country. This political instability will likely have a negative impact on the business climate in the country, in a context of inadequate governance and an extremely high level of corruption.