Armed violence and social unrest pose a risk of death and injury to employees located in the Democratic Republic of the Congo (DRC). Growth in the mining sector will remain robust. However, the introduction of a new mining code in March 2018 adds to the operational challenges faced by investors.
The risk of social unrest and insurgent activity is elevated, as President Joseph Kabila has remained in office beyond the 19 December 2016 constitutional limit. Kabila has re-scheduled elections for
However, should elections be held, they are more likely to take place in 2019. Social unrest and strikes due to the delayed elections will pose business interruption risks for the mining industry. The use of force by security forces is likely in any future protests, raising employee loss of life and injury risks. In December 2017, 7 people were shot dead by security personnel during anti-government protests in Kinshasa.
Mining projects in eastern DRC are likely to be threatened by increased militant activity in 2018, including by Forces Démocratiques pour la Libération du Rwanda (FDLR) and Mai-Mai militia. These groups pose a high risk of small arms attacks on road cargo and civilians, as well as kidnap for ransom. In March 2017, a French citizen and 3 Congolese nationals were kidnapped while working for an international mining firm in Maniema province. The individuals were released in May 2017, following negotiations in which the kidnappers demanded a USD 1 million ransom. It is unclear if the ransom was paid.
The fragile political and security environment will weigh on consumption and investment. Despite robust growth in the mining sector, which is forecasted to expand by 17.7% in 2018, the DRC’s economy as a whole faces headwinds over the near term. Real GDP growth is forecasted to slow slightly from an estimated 2.9% in 2017 to 2.6% in 2018. Reduced financial support from foreign donors in the wake of delayed elections has weakened the external position. Foreign reserves are estimated at USD 800 million at end-2017, providing 3 weeks of import cover.
General government debt is low, at a forecasted USD 4.62 billion by the end of 2017 or 11.6% of GDP. However, Moody’s lowered the rating outlook for the DRC from stable to negative in December 2017, driven by concerns that political instability will fuel macroeconomic volatility over 2018. Increased taxes and royalties as part of new mining code in March 2018 are likely to weaken investor sentiment. However, they are projected to increase government revenue by more than USD 1 billion per year, supporting public finances.
Regulatory uncertainty continues to pose a downside risk to mining operations in the DRC. In March 2018, President Kabila signed a revision of the 2002 mining code mining code into law. Although the new code lack clarity, it is expected to increase royalty rates on gold from 2.5% to 3.5%; copper from 2% to 3.5%, and raise royalties on "strategic" metals, reportedly to include cobalt, to 10%. The new mining law also introduces a tax on windfall profits, halves the guaranteed contract stability period to 5 years, and doubles the government’s take in new mining projects to 10%.
Mining firms are likely to comply with the new legislation as the market for metals such as cobalt remains lucrative: its price increased by 127% over the course of 2017. However, the mining code raises downside risks to the investment environment. The changes also elevate contractual risks as state mining firm Gécamines has pledged to renegotiate all contracts with international miners over the next year.
Regulatory risks are also elevated due to a US Office of Foreign Assets Control (OFAC) decision in December 2017 to impose sanctions against Dan Gertler, an Israeli billionaire with extensive business interests in the DRC. Gertler and a number of companies linked to him stand accused of defrauding the Congolese state of hundreds of millions of dollars through corrupt oil and mining deals. International mining firms that have collaborated with entities associated with Gertler will need to take care to comply with the new sanctions in place.
†† Underwriters would generally refuse to offer the narrower coverage due to likelihood of a claim.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email