Congo (Democratic Republic): Off cover for medium- to long-term political risk

Posted by on Dez 12th, 2016 and filed under Allgemein, Breaking News, Markets. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

Event

The political crisis in the Democratic Republic of Congo has been building up for some time.

After trying to amend the constitution and delay elections by running a census, a ‘national dialogue’ finally cleared the road for Kabila to cling on to power. A deal on a transition government was struck in October which dodged the election process at least until April 2018.

Opposition protests were banned and broadcasts of critical radio stations (including the UN-run Radio Okapi) were blocked. The national dialogue was rejected by the largest opposition and civil society groups, yet a number of opposition members did participate and fractured the political landscape.

In November, Kabila appointed a fairly unimportant opposition figure as Prime Minister – Samy Badibanga – to raise legitimacy for his ‘government of national unity’ without really having to hand over any power.

Among other things, the national dialogue was boycotted by ‘The Rally’, Congo’s biggest opposition coalition founded by the most veteran opposition leader Tshesikedi and including leading figures like the popular former governor of Katanga, Moïse Katumbi, whose power was undermined since he had to flee the country after being charged for treason and fraud.

On the economic side, the Congolese franc lost 10% of its value in November. Weak wining export revenues, rising political uncertainty and foreign exchange reserves around only one month of import cover barred the central bank from intervening to support the exchange rate, causing a substantial devaluation.

Impact on country risk

It remains uncertain what will happen next, though things are likely to get violent building up to the official end of Kabila’s second term on 19 December 2016.

Protracted protests would also raise the risk for military mutinies or coup attempts, especially in combination with the non-payment of military and police salaries since low mining revenues eroded government coffers.

Then again, security forces’ loyalty might predominantly depend on their access to unofficial financing (bribes and corruption). Kabila and his entourage are determined to stay seated, although the vast majority of the population strongly opposes to his staying in power beyond December 2016.

In fact, the size of the September 2016 demonstrations in Kinshasa – in which at least 50 people were killed – indicates great anti-Kabila sentiment on the one hand, while it also showed that the government and security forces are prepared to use violence against civilians for defending Kabila’s tenure.

Over the past months, demonstrations have been witnessed in practically all urban centres of the country while violence also erupted between supporters of The Rally and police forces in Lubumbashi (capital of mining province Katanga). The United States, EU and UN called for all sides to end political violence.

The US imposed sanctions on security officials for using excessive force and lethal weapons during demonstrations and the EU are discussing possible sanctions.

The IMF and the World Bank do not have any leverage left as they practically pulled out completely. Together with international pressure, the opposition might still be able to force Kabila into talks to find a peaceful solution.

However, since the election of Donald Trump, diplomatic pressure and further sanctions initiated by the US are likely to fade out given Trump’s inherent lack of interest in the region. The UN envoy in Kinshasa communicated the following:

“There is an ‘extreme risk’ to the stability of the DRC, as deepening political rift over President Kabila’s future will likely spark violence.”

Due to the inflamed risk for civil war, Credendo Group downgraded the DRC’s MLT political risk from category 6 to 7 and, accordingly, went off cover for medium- to long-term political risk. For short-term risks, Credendo Group remains in category 6 for the time being, although the outlook is negative.

Country risk analyst Louise Van Cauwenbergh – Credendo Group


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