Covid-19 and Congo: Opportunity Amidst the Crisis
Like elsewhere in Africa, the worst-case health impacts of Covid-19 in the DR Congo have so far not materialized. But like elsewhere, the economic impacts of the crisis have been swift and widespread.
In response, the government announced several economic stimulus programs and initiatives. To increase liquidity and funding, the Banque Centrale du Congo (“BCC”) granted a moratorium on the increase in commercial banks’ minimum capital requirements to USD 50 million until January 2022. The BCC also opened a long-term funding facility for banks for up to 24 months and relaxed requirements on the classification of non-performing loans (“NPLs”), while encouraging banks to restructure such loans without penalties. Foreign support included a donor-backed funding for an emergency health response channeled directly to the public sector. A USD 445 million program by the World Bank was allocated for the eastern provinces.
More support however is needed to support the private sector and especially SMEs which face an unprecedented number of challenges. Stagflation has set in, with expected 20% inflation levels by year end, yet with expected economic contraction of 2%. A recent survey showed sales of goods and services fell approximately 75% from pre-pandemic levels, causing further increases in unemployment. Supply chain disruptions have affected approximately 80% of businesses. Business visibility remains limited.
There is specific need for long-term funding to supplement the shorter-term funding historically provided by local financial institutions. Commercial banks’ funding response has so far been muted due to increased NPLs and liquidity preservation measures. The announced BCC measures are intended to unlock bank funding. Digital financial services should also play a more significant role. Although mobile money transactions have increased since the pandemic’s outbreak, they have yet to drive significant decreases in cash transaction volumes. The absence of a national switch and mobile money interoperability are among the technical barriers to adoption and growth.
As the adage goes, there is opportunity in crisis. In the DR Congo, the opportunity is for impact investors to step in and fund well managed businesses, small and large. Such funding and investment can be channeled through the local financial institutions or directly to businesses. Covid-19 has also highlighted the need to build and strengthen local value chains and promote local production to reduce the country’s dependence on imported goods. Verdant Capital remains well placed to assist local companies and global investors alike given its long-standing in-country presence and its extensive track record of investment facilitation there.
Sources: Banque Centrale du Congo, Elan RDC/Federation des Entreprises au Congo, Verdant Capital