The external account gained a cushion and lost some price support in the same month.

By Kanisa Magazine · May 2022

The Banque Centrale du Congo reported international reserves of $3,790 million on 20 May, up from $2,940 million on 29 April and $2,751 million at the end of 2021. In the same weeks copper and cobalt prices slipped from their spring highs while Brent crude rose above $110 a barrel. The DRC’s external account was gaining a cushion and losing some price support at once.

The pattern is worth separating into its parts, because price, volume, imports and financing each point in a different direction. A business reading only the reserve headline would conclude that the external position is comfortable. A business reading only the metal prices would conclude that it is deteriorating. Both readings are partly right.

The price effect: metals off the peak

Copper lost about 11 per cent from March and cobalt about 9 per cent in ten days.

The BCC’s digest of 25 May quotes LME copper at $9,286 a tonne on 20 May, against $10,390 on 31 March. LME cobalt, from the digest’s Boursorama line, fell from $81,690 a tonne on 10 May to $74,660 by 16 May and stayed there. Neither move is dramatic against the 2021 base, but both arrive as the import bill is rising.

The volume effect: Kolwezi keeps growing

Output gains cushion lower prices, and one mine shows how.

The BCC’s provisional production table shows copper at 1,797,836 tonnes in 2021, 12 per cent above the previous year, and cobalt at 93,011 tonnes, 7 per cent higher. Volume is still building. In its 10 May results, Ivanhoe Mines said Kamoa-Kakula had sold 51,919 tonnes of payable copper in the quarter for record revenue of $519.6 million, after declaring commercial production from its Phase 2 concentrator on 7 April. Phase 3 is projected to lift annualised output to about 600,000 tonnes by the fourth quarter of 2024.

The import effect: fuel and food

Oil adds to the bill faster than metals add to receipts.

Brent stood at $112.68 on 20 May against $78.36 at the end of December. The World Bank’s May economic update estimates that dearer oil and wheat could weigh on the balance of payments by 0.7 to 1.2 per cent of GDP, while still projecting a small current-account surplus of 0.1 per cent of GDP for 2022 because metals provide a positive terms-of-trade shock. The same report notes that copper and cobalt make up more than 80 per cent of exports, with China taking about 40 per cent.

The financing effect: how dollars reach the vault

Mining receipts bought back by the BCC, rather than the markets, fill the reserve line.

Reserves rise only when the central bank acquires dollars. In the BCC’s foreign-exchange ledger the line for mining-receipt buy-backs reads $563.5 million for April, then $278 million by 20 May, where all of 2021 totalled $1,378 million. The IMF’s 9 May mission statement noted that the economy had rebounded and that gross reserves reached about $3 billion at the end of 2021. The digest does not explain the jump of about $650 million between 29 April and 10 May, so it cannot be assumed to repeat. Import cover, at 3.30 months on 20 May against 2.61 at the end of 2021, is the figure that matters for a buyer of imported inputs.

What this means for an importer or exporter

The cushion is real, but it is a function of mining dollars, not of diversified exports.

For importers of fuel, wheat or equipment, three months of cover is a buffer that lowers the odds of a rationing episode in the next quarter, and it supports the case for fixing dollar prices on supply contracts now. For exporters outside mining, the position offers little relief, since the dollars that fill the vault flow through mining-linked taxes. The test for the second half of the year is whether copper holds above $9,000 while Brent stays high. If it does, reserves keep building; if copper slips below it, the cover will depend on the pace of mining buy-backs and on the IMF programme reviews.