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Balance of Payments and International FDI Position in the DRC: FY2019/20

DRC BoP and FDI Position: FY2019/20

The DRC’s merchandise export earnings have been growing steadily since 2017. The growth in export earnings has improved the DRC’s balance of payments and resulted in increased gross official reserves. The balance of payments recovered from a deficit to a surplus in 2017 supported by the capital and financial account deficit (net inflows) and inward foreign direct investment (FDI) flows; despite the persistent outward FDI outflows. These capital flows have improved DRC’s balance of payments and the country’s net international FDI position. The DRC’s balance of payments surplus is projected to moderate to a lower level, which is projected to support steady growth in gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in the DRC (2016-2024)

Current Account Balance in the DRC (2016-2024)

Source: IMF 2019, DRC 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

Total merchandise imports to DRC decreased to USD 5.2 billion in 2018, from an annual average of USD 5.3 billion for 2015 to 2017[1]. Exports increased to USD 8.8 billion in 2018 from an annual average of USD 6.4 billion for 2015 to 2017[2]. The faster growth in exports has not been sufficient to improve the DRC’s current account balance, which deteriorated from a deficit averaging -USD 1.6 billion (approx. 4.0% of GDP) for 2016 to 2018, to a deficit of -USD 1.7 billion (approx. -3.5% of GDP) in 2019[3]. The growth in export earnings has not been sufficient to improve the DRC’s balance of payments but gross official reserves have increased.

 

Figure 2: Capital and Financial Account Balance in the DRC (2016-2024)

Capital and Financial Account Balance in the DRC (2016-2024)

Sources: IMF 2019, DRC 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

However, the DRC’s capital and financial account balance deteriorated slightly from a surplus (net inflows) averaging USD 2.0 billion (approx. 4.9% of GDP) for 2016 to 2018, to a surplus of USD 1.9 billion (approx. 3.8% of GDP) in 2019[4]. The DRC’s balance of payments deteriorated from an average of USD 222.7 million (approx. 0.5% of GDP) for 2016 to 2018, to USD 151.0 million (approx. 0.3% of GDP) in 2019[5]. Gross official reserves increased from USD 625.0 million in 2016 to USD 657.0 million in 2018, before continuing to increase to USD 1.0 billion in 2019[6]. During this period, the DRC experienced declining inward FDI and outward FDI flows.

 

Figure 3: Gross Official Reserves and Balance of Payment in the DRC (2016-2024)

Gross Official Reserves and Balance of Payment in the DRC (2016-2024)

Sources: IMF 2019, DRC 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.

 

Inward FDI inflows decreased from USD 1.7 billion in 2015 to USD 1.3 billion in 2017, before improving to USD 1.5 billion in 2018[7]. As a result, the DRC’s inward FDI stock increased from an average of USD 21.2 billion for 2015 to 2017, to USD 24.0 billion in 2018[8]. Congolese citizens decreased their investments abroad as inward FDI to the country moderated.

 

Figure 4: Inward Foreign Direct Investment in the DRC (2015-2018)

Inward Foreign Direct Investment in the DRC (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Outward FDI outflows decreased from USD 507.8 million in 2015 to USD 292.2 million in 2017, before deteriorating further to USD 209.2 million in 2018[9]. As a result, the DRC’s outward FDI stock increased from an average of USD 2.3 billion for 2015 to 2017, to USD 2.8 billion in 2018[10]. These capital flows have improved the DRC’s balance of payment but deteriorated the country’s net international FDI position.

 

Figure 5: Outward Foreign Direct Investment from the DRC (2015-2018)

Outward Foreign Direct Investment from the DRC (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

The DRC’s balance of payment has been supported by persistent inward FDI inflows despite the fluctuations in the level inflows to the country in the period from 2015 to 2018. However, outward FDI flows have also been declining which has deteriorated the DRC’s net international FDI position. The DRC’s net international FDI position deteriorated net liabilities amounting to an average of -USD 20.0 billion (approx. -52.7% of GDP) for 2015 to 2017, to net liabilities amounting -USD 22.5 billion (approx. -47.9% of GDP) in 2018[11].

 

Figure 6: International Foreign Direct Investment Position in DRC (2015-2018)

International Foreign Direct Investment Position in DRC (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels the DRC’s foreign liabilities are a significant proportion of GDP. Given the relatively narrow domestic capital markets, the DRC should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on raw mineral commodity exports. Nevertheless, the DRC’s balance of payments surplus is projected to continue growing in the medium-term, which is projected to support continued growth in gross official reserves.

 

Improvements in inward FDI inflows should support continued improvement of the DRC’s balance of payments in the forward-looking medium-term despite the consistently growing current account deficit. The current account balance is projected to deteriorate from a deficit of -USD 1.7 billion (approx. -3.5% of GDP) in 2019 to a deficit averaging -USD 2.5 billion (approx. -4.4% of GDP) from 2020 to 2024[12]. The DRC’s capital and financial account balance is projected to deteriorate to a surplus (net inflows) averaging USD 2.7 billion (approx. 4.7% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to continue growing from a surplus of USD 143.0 million in 2020 to USD 225.0 million in 2024, which is equivalent to an average of USD 230.2 million (approx. 0.4% of GDP)[14]. Thus, the DRC’s gross official reserves are projected to increase from USD 1.0 billion in 2019 to an average of USD 1.5 billion from 2020 to 2024[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. DRC 2019 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. DRC 2019 Article IV Consultation, ibid.
[5] IMF 2019. DRC 2019 Article IV Consultation, ibid. There are relatively significant errors and omissions in DRC’s balance of payments data equivalent to -USD 200.0 million in 2016, -USD 539.0 million in 2017 and USD 410.0 million in 2018.
[6] IMF 2019. DRC 2019 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. DRC 2019 Article IV Consultation, ibid.
[13] IMF 2019. DRC 2019 Article IV Consultation, ibid.
[14] IMF 2019. DRC 2019 Article IV Consultation, ibid.
[15] IMF 2019. DRC 2019 Article IV Consultation, ibid.

 

 


Siyaduma Biniza

Siya is the Executive Director at PESA.

Siyaduma Biniza

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