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Democratic Republic of the Congo Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views The Democratic Republic of the Congo will experience a mild slowdown in real GDP growth in 2016 as the copper sector continues to struggle in a climate of low prices and political risk weighs heavy on investor sentiment. Inflation will gently rise in the Democratic Republic of the Congo in 2016, as a widening of the current account deficit and low foreign reserves sees the local currency weaken slightly, raising the cost of imports. However, an increase in prices will be insufficient to warrant a hike in the policy rate by the Banque Centrale du Congo. The budget deficit will peak in 2016 in the Democratic Republic of the Congo, as government revenues continue to suffer on the back of weakness in the copper sector. Although the law requires the government to balance its books, we believe that this year's elections will keep the public coffers firmly in the red.

The Democratic Republic of the Congo's current account will deepen in 2016 due to the weak outlook for its mining sector. Due to an unappetising investment climate and limited government reserves, the current account will be fuelled primarily by increasing external debt issuance by the government. The outlook for political risk will deteriorate in the Democratic Republic of Congo (DRC) in 2016, as both foreign and domestic threats to stability heighten tensions and increase the likelihood of violence. Given that the likelihood of any near-term improvements in DRC's political situation is low, these destabilising dynamics risk undoing much of the progress made over the past two years. Major Forecast Changes Political risks caused by increasing tensions surrounding the presidential election and the escalation of violence in neighbouring Burundi will likely weigh on investor sentiment towards the DRC over 2016, leading us to adjust our forecast for real GDP growth from 6.7% to 6.6%.

Table Of Contents

Democratic Republic of the Congo Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth 8
Growth Dips On Weak Copper Sector And Political Risk8
The Democratic Republic of the Congo will experience a mild slowdown in real GDP growth in 2016 as the copper sector continues to
struggle in a climate of low prices, and political risk weighs heavy on investor sentiment
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 10
Electioneering And Commodity Slump Deepen Budget Deficit10
The budget deficit will peak in 2016 in the DRC, as government revenues continue to suffer on the back of weakness in the copper
sector Although the law requires the government to balance its books, we believe that 2016 elections will keep the public coffers firmly
in the red
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Current Account Deficit Deepens Despite Limited Liquidity13
The Democratic Republic of the Congo's current account will deepen in 2016 due to the weak outlook for its mining sector Due to an
unappetising investment climate and limited government reserves, the current account will be fuelled primarily by increasing external
debt issuance by the government
Outlook On External Position 14
TABLE: TOP 5 GOODS EXPORTS IN 201415
TABLE: TOP 5 GOODS IMPORTS IN 201415
Monetary Policy 16
Inflation To Remain Manageable Despite Slight Increase16
Inflation will gently rise in the Democratic Republic of the Congo in 2016, as a widening of the current account deficit and low foreign
reserves sees the local currency weaken slightly, raising the cost of imports However, an increase in prices will be insufficient to
warrant a hike in the policy rate by the Banque Centrale du Congo
Monetary Policy Framework 17
Chapter 2: 10-Year Forecast 19
The DRC Economy To 2025 19
Size Will Prove A Double-Edged Sword19
While the sheer enormity of the Democratic Republic of the Congo will help drive economic growth via a large population and wide
resource base, it will weigh on development of non-extractive sectors due to the challenges of developing adequate infrastructure and
state control over such a large territory
TABLE: LONG-TERM MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Political Risk Increases On Growing Domestic And External Threats24
The outlook for political risk will deteriorate in the Democratic Republic of Congo (DRC) in 2016, as both foreign and domestic threats to
stability heighten tensions and increase the likelihood of violence Given that the likelihood of any near-term improvements in the DRC's
political situation is low, these destabilising dynamics risk undoing much of the progress made over the past two years
TABLE: POLITICAL OVERVIEW24
Long-Term Political Risk 25
Structural Weaknesses Will Prolong Instability25
There is little chance that DRC will succeed in overcoming the many structural weaknesses that have made it one of Sub-Saharan
Africa's least stable countries While the consolidation of power by the central government remains possible, our core scenario is that
Kinshasa's authority over provincial governments will remain limited and that perceived corruption, violence, and poor institutions will
continue to characterise the DRC at the local level A return to the civil war and anarchy of the 1990s is unlikely, but remains a risk
Chapter 4: Operational Risk 29
SWOT Analysis 29
Chapter 5: BMI Global Macro Outlook 31
Global Macro Outlook 31
Tail Risks Mounting Amid Sub-Par Growth31
TABLE: GLOBAL ASSUMPTIONS31
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %32
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 32
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %33
TABLE: MACROECONOMIC DATA and FORECASTS35

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