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Congo's faltering economy: Too big to fail

From The Economist print edition
April 16, 2009/Kinshasa

A collapsing Congolese state may be resorting to old-style brinkmanship

THE Democratic Republic of Congo was born into crisis and, for its nearly 50 years of existence, it has more or less stayed there. From a civil war that nearly destroyed the newborn nation in the wake of independence, it descended into decades of parasitic rule at the hands of a strongman, Mobutu Sese Seko. As he raided the coffers of state mining companies, the desperate and starving masses occasionally looted what was left of the country’s rotting infrastructure. In 1994 inflation hit nearly 10,000%: small by today’s standard in Zimbabwe, but enough to help end Mr Mobutu’s rule three years later.

Now, after a decade or so recovering from it, Congo has again been brought to the brink of economic collapse, this time by the world recession. Resorting to some old-fashioned brinkmanship, however, its leaders may yet muddle through without being thrown out. After all, the Congolese have experienced much worse.

The slump in demand for Congo’s bountiful minerals has been painful. In Katanga province, 300,000-odd miners lost their jobs virtually overnight last year, as copper and cobalt exports plummeted. In December, Congo slashed its estimate for this year’s cobalt exports by more than half. The reality may be worse. Fewer people want diamonds. Direct foreign investment to Congo this year is likely to fall by more than two-thirds. The country’s GDP growth may dive from 8% last year to less than 3%. The local currency has lost more than a third of its value since last year.

Since February the Congolese state has been virtually broke. Foreign donors are worrying that a decade of investment in stability, including costly elections in 2006 overseen by the UN’s largest peacekeeping mission, may evaporate in a whirlwind of riots and army mutinies. “There’s not enough money to pay salaries on time, to pay soldiers on time, to pay the costs of running a government,” says a western diplomat in Kinshasa, the capital. “And I don’t think any country has stability if these costs are not met.”

It was therefore surprising that, far from tightening its belt as its reserves fizzled, the government should have been confident enough to embark on an expensive and inconclusive military campaign in January against foreign-backed rebels in the east. And yet, at a time when Congo seemed most in need and in the worst negotiating position, its government appears to have gained the upper hand in a row with foreign donors over a mining and infrastructure package worth $9 billion that was agreed a year ago with China. The IMF objected to it, on the ground that it would saddle Congo with a massive new debt, so is delaying forgiveness of most of the $10 billion-plus that Congo already owes.

China’s ambassador in Kinshasa has accused the IMF of blackmail. Though Chinese companies have yet to complete a feasibility study of the deal, they have begun infrastructure projects across the country. President Joseph Kabila thinks the agreement with China is the jewel in the crown of his otherwise drab economic policy. “No, we will not revisit this contract,” says the head of his special commission to oversee the Chinese deal. “The Congolese government is making sacrifices to benefit from debt relief, but it is also needs to renew its infrastructure.”

For the time being, Mr Kabila looks likely to get his way. In March, the IMF hastily disbursed nearly $200m to boost Congo’s foreign-currency reserves and maintain macroeconomic stability. The World Bank doled out $100m for teachers’ salaries and government utility bills. The European Union and the African Development Bank may chip in too, bringing total emergency aid to $450m or so, perhaps enough to tide Congo over until the end of the year.

What is more, Congo’s share of a general allocation of $250 billion in IMF special drawing rights approved at the recent summit of G20 governments in London may secure its foreign reserves for a year or two. This should allow Mr Kabila to limp along until 2011, when he is up for re-election. In the meantime fears are growing that he may be adopting the time-dishonoured technique of Mr Mobutu, who, as a cold-war ally, got billions in foreign aid from the West because, as he used to reckon, “you can’t afford to see us fail.”

posted by Mamadou Kouyate @ 2:49 PM