Democratic Republic of Congo
Economic performance and outlook: Economic growth averaged 7.7% between 2010 and 2015, but lower prices for export commodities (copper and cobalt) and political uncertainties hindered growth in 2016. Growth in 2017 was estimated at 3.3% due to the good performance of the extractive and manufacturing industries, construction and public works, and trade. The recovery is projected to continue into 2018 and 2019 with rising commodity prices and increased activity in the extractive industry as new mining projects start.
Macroeconomic evolution: The economic slowdown hurt public finances. Government revenues (excluding grants) dropped from 13.6% of GDP in 2015 to 9.4% in 2016, causing a decline in public expenditure to 12.8% of GDP in 2016, from 17.3% in 2015. Foreign debt remains under control, with the debt risk identified as moderate. However, domestic debt rose from 3.6% of GDP in 2015 to 7.6% in 2016. Currency reserves fell from $1.4 billion in 2015 to $852.1 million in 2016 to $668 million in September 2017 (or 2.93 weeks of imports). The Congolese franc depreciated against the U.S. dollar by 23.7% in 2016 and 22.5% in late September 2017, which raised inflation from 0.8% in 2015 to 6.9% in 2016 to 42.9% in 2017. The current account deficit was 3.2% of GDP in 2016 and an estimated 2.4% in 2017 and is projected to continue to improve in 2018.
Tailwinds: Commodities play a vital role in the economy. Rising prices for copper (up 15.8%) and iron (up 87.9%) between December 2016 and September 2017 bode well for the economy; copper production rose 9.3%, and iron production rose 18%. If this trend continues into 2018 and 2019, government revenues, currency reserves, the exchange rate, and the balance of payments are likely to improve. In 2015, the extractive sector accounted for 97.5% of export earnings, 24.7% of current government revenues, and 20.9% of GDP. In agriculture, multiple feasibility studies on agro-industrial parks are under way. These parks are expected to help diversify the economy, which depends heavily on oil and several mineral products.
Headwinds: Not all stakeholders are involved in navigating the transition leading up to elections, making the political situation unpredictable. Threats to national unity and social peace raise questions about the economic outlook for 2018 and 2019. Security remains a pressing concern in the eastern and central areas of the country, where economic activity could be jeopardized if violence continues or worsens. The falling purchasing power of households caused by the rising prices of necessities and the depreciation of the Congolese franc could awaken a dormant social crisis. The country increased two places in rank in the World Bank’s 2018 Doing Business report, from 184 to 182 out of 190 countries, but the business climate, among the 10 worst in the world, needs major improvements.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015