Copper above US$8,000 and cobalt jumping, while the central bank’s own dollar stock slipped.

By Kanisa Magazine · January 2021

Congo’s foreign-exchange cushion can be described as US$5.8bn or as US$0.7bn, and both numbers are correct. The Banque Centrale du Congo’s broad reserve count stood at US$5,815m at the end of December 2020, 5.3 months of imports. Its strict count, drawn only from the central bank’s own foreign-exchange position, was US$708.9m, or 0.65 months, and slipped to US$680.3m by 21 January.

In those same weeks copper climbed above US$8,000 a tonne and cobalt jumped. Money was arriving in the mining economy faster than the central bank’s own stock was growing, which is the pattern worth understanding before reading anything into a metals rally.

Two reserve counts, one definition gap

Broad reserves include banks’ dollar deposits, which are owed to customers; strict reserves are what the BCC can spend.

In the BCC weekly digest of 27 January, the broad measure includes commercial banks’ foreign-currency deposits. It rose from US$4,378m at the end of 2019 to US$5,815m a year later, a gain of 33 per cent. The strict measure moved the other way, from US$1,031m to US$709m. The difference between them is largely dollar money that belongs to depositors and sits at the central bank as required cover. The strict figure, with a low of US$610.7m on 28 December, is the one that pays for defending the franc.

The commodity leg of the external account

Copper was 43 per cent above January 2020 and cobalt had jumped from late December.

London Metal Exchange copper stood at US$8,051 a tonne on 22 January against US$7,803.50 on 31 December and US$5,620 at the end of January 2020. S&P Global Platts reported on 15 January that bullish sentiment had pushed copper to an eight-year high. Cobalt cathode in London went from US$15.75 to US$17.50 a pound on 12 January, and the LME 99.3 per cent grade rose from US$32,000 to US$37,750 a tonne by 22 January, up 18 per cent. Gold slipped 1 per cent to US$1,870 an ounce, so the rally was specific to the battery and construction metals that Congo exports. Coltan rose from US$51 to US$56 a pound, and Brent crude from US$51.52 to US$55.07 a barrel, which lifts the import bill for fuel as the metals lift export receipts.

Volumes and a lag

Output was rising too, but cash reaches the central bank after taxes, royalties and bank deposits.

BCC data show copper output of 1,456,281 tonnes for January to November 2020, 12.4 per cent above the same period of 2019, and cobalt of 78,200 tonnes, up 7.9 per cent (both provisional). Higher prices and higher volumes should lift dollar inflows, but the route to the strict reserve count is indirect: companies sell abroad, bank their proceeds, pay royalties and taxes to the Treasury, and the Treasury’s dollar account at the BCC then moves with its spending. That lag is why the strict count fell 4 per cent between 31 December and 21 January while the metals rose.

What the IMF relationship adds

A reserve count that moves little is why the authorities keep an outside anchor.

The Fund’s December 2019 explainer introduced the staff-monitored programme and Rapid Credit Facility disbursement that began the current relationship between Kinshasa and Washington. With strict cover under a month of imports, any larger financing arrangement in 2021 would lean on rebuilding reserves as much as on the budget, and the reserve table is the first place a programme review would look.

What to do with a rally

Treat the broad number as a banking figure and the strict number as a risk figure.

Importers and lenders should track months of import cover on the strict basis, now 0.65, and treat any move above one month as the real sign that the rally has reached the central bank. Exporters selling into the rally should repatriate proceeds through Congolese banks on a schedule instead of leaving them offshore, since those deposits feed the very reserve figure that counterparties watch. Anyone pricing a contract against the franc should remember that a commodity boom helps the Treasury first and the central bank second.