Output rose by a third or more in the first half, but copper and cobalt prices have taken back much of the gain.

By Kanisa Magazine · August 2022

Congo’s international reserves stood at US$4,167 million on 26 August, 51 per cent above the US$2,751 million recorded on the last day of 2021. They got there while the two metals that pay for the country’s imports were falling. London copper was US$8,154 a tonne that day against US$10,390 on 31 March, a drop of 21 per cent. Cobalt on the same table fell from US$81,840 a tonne to US$51,520, down 37 per cent.

The external account is holding because tonnes are growing faster than prices are shrinking, and because official money is filling the remainder. Both supports have limits, and August is the month they began to show.

Tonnes against dollars

Output is up by a third or more, and the price has taken back much of the gain.

The BCC digest of 29 August gives provisional first-half output. Copper reached 1,088,364 tonnes, against 812,566 in the first half of 2021, a rise of 34 per cent. Cobalt reached 61,775 tonnes against 44,654, up 38 per cent. Brent crude eased from US$117 at the end of May to US$101 on 26 August, which helps an import bill that is mostly fuel and equipment.

Set the cobalt volume gain of 38 per cent beside the 37 per cent price fall since March and the line roughly stands still, though the periods differ. Copper still comes out ahead, because its price is down by a fifth while tonnes are up by a third. The pattern is volume doing the work that price did a year ago, which is a more fragile source of earnings because it needs new capacity every year.

What the account is made of

Two metals pay for the country, and machinery is what it buys.

The IMF’s staff report on the second review puts numbers on the concentration. Copper and cobalt were 72 per cent and 16 per cent of goods exports in 2021. Capital goods, mostly for mining, were 45 per cent of goods imports and consumer goods 26 per cent. The goods surplus of 7 per cent of GDP was cancelled out by a services deficit of equal size, leaving a current account deficit of about 1 per cent of GDP.

The World Bank’s May update puts the two metals above four-fifths of all exports and says China buys roughly two-fifths of the total. It projected a small current account surplus of 0.1 per cent of GDP for 2022, a forecast made before copper’s summer slide. A fall in the copper price therefore cuts receipts in one step. But the mining companies’ own imports of trucks, reagents and power equipment tend to fall with it, which softens the blow.

Who fills the gap

Concessional money and central bank purchases have carried reserves since May.

Reserves were US$3,775 million at the end of May and US$4,157 million at the end of July, then moved by only US$10 million to 26 August. The BCC itself bought and sold just US$35 million in the market that month. The 2021 build-up had help from outside: the IMF records an SDR allocation of US$1.47 billion and net central bank purchases of US$987 million in auctions. In June the World Bank approved US$250 million of budget support, the first financed by its concessional window since 2005, alongside US$500 million for transport.

Those inflows are lumpy and one-off. Repatriated mining receipts are the repeating source, and they follow the price.

What suppliers and lenders should read from it

Plan on reserves of about US$4 billion, not on a further climb.

A flat reserve line at 2.5 months of imports on the BCC’s method is adequate for a floating currency in a dollarised market, but not generous. For a supplier of equipment to the mines, the risk is not the franc. It is a slowdown in capital orders if copper stays under US$8,500, and the digest gives a good early reading: the weekly price table.

For a lender or investor, the sensible test of the next three months is whether tonnes keep growing at a third a year. Kamoa-Kakula’s second phase, which the World Bank expects to lift mining growth into 2024, is the main source of that growth. Until it shows in the monthly numbers, price is the variable to watch, and the reserves line is the proof of whether the volumes have been enough.